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Unilever's $5.4 bn offer for Hindustan begins June 21

Anglo-Dutch firm Unilever's USD 5.4 billion open offer to buy 22.52 percent stake in its Indian arm Hindustan Unilever begins June 21.

Unilever said in a statement that it has received approval from the market regulator the Securities and Exchange Board of India (SEBI) for its voluntary open offer to increase its stake in Hindustan Unilever Limited (HUL) from 52.48 percent to upto 75 percent.

"The tender period will commence on June 21, 2013 and will end on July 4 2013," it said.

This is the largest open offer so far in India amounting to Rs.29,200 crore (USD 5.4 billion). The offer is being managed by HSBC Securities and Capital Markets (India) Private Limited.

Unilever plans to acquire 48.70 crore shares, representing 22.52 percent stake, from the public shareholders of Hindustan Unilever at Rs.600 per share. The open offer by the London-based parent firm was at a premium of 21 percent when compared to the closing price of Rs.497.6 recorded April 29, a day before the open offer was announced.

Market experts said the offer provides a good exit opportunity for retail shareholders of HUL given the attractive open price of Rs.600 in a competitive business environment for FMCG companies in India.

"We would advise tendering shares in the open offer announced by Unilever Plc," Kotak Institutional Equities said in its report on the company.

According to domestic research house IDFC Securities, "though the open offer will create a floor price for the stock, we recommend subscribing to the offer given the significant premium".

Antique Stock Broking, a Mumbai-based domestic research firm, has changed its recommendation on HUL stock to sell from hold due to attractive exit price option.

"We believe that the minority shareholders should tender to the open offer price of Rs.600 as the same offers an attractive exit price even in the best of the scenarios," the Antique report added.

The offer price also provides an opportunity for small investors to exit from HUL and invest in other undervalued FMCG stocks, brokers said.

Experts said going forward the business environment in the FMCG space will be highly competitive as the consumer sentiments remain weak and high consumer inflation puts pressure on wallets in the recent months.

ICICI Securities, which has recommended sell on HUL says: "Though the stock price will see support from the open offer in the near term, we believe it makes sense to tender the stock in the open offer."

"We downgrade HUL to Sell, maintaining one year target price of Rs.418 per share," it said.

Shares of Hindustan Unilever closed 0.24 percent down at Rs.593.30 at the Bombay Stock Exchange (BSE) Friday.