Hindustan Unilever Limited

Came across this article from the great Sanjay Bakshi.


A key point he makes in his article about Unilever:

The likely explosion in spending is, in my view, a key reason why Unilever recently made a tender offer to increase its stake in its local Indian subsidiary at a P/E multiple of 34. This is a very significant development because for the first time, instead of taking money out of India, Unilever is putting money into it. Unilever is paying up for quality.


Now here is my thesis on Open Offer of Unilever

Definitely this is not a buyback like Reliance. HUL wants the buyback to be successful.

Most of the shares are held by MFs and FII - LIC being a major shareholder @ 3.2%.

Now since HUL is a part of all major Stock Indexes, selling/tendering HUL would mean the fund is basicallyUNDER-WEIGHTINGthe HUL stock in their portfolio.

In my humble opinion, any fund which has BSE/NIFTY as its benchmark would not commit the mistake ofUNDER-WEIGHTINGHUL in its portfolio, especially when HUL itself is showing so much confidence in its own business.

In such a scenario, I think these institutions will not tender the shares at 600 unless the offer is further sweetened a say atleast upto 700 or even higher.

Scenario 1 a Offer is not sweetened

We buy at CMP of 580, and tender at 600. Our loss is the opportunity cost.

Scenario 2 a Offer is sweetened

We get the benefits of the upside. Should be substantial. Even at 700 Rs. it comes to approx 17% returns.

Plus can we not sell at all ???

Please let me know, if I am going wrong somewhere in my hypothesis.

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May be the script is playing like , what I was suggesting :slight_smile:

In the money as of now