Common sense vs corporate finance

30 April 2013 By Chris Hughes

The consumer goods group will spend $5.4 bln to raise its stake in an Indian subsidiary. Corporate finance says it should have bought its own, cheaper shares. But better to use a strong balance sheet to support the business than to use a strong business to weaken a balance sheet.

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Unilever has launched an offer for shares in Hindustan Unilever, the consumer group’s listed Indian subsidiary, with a view to raising its stake from 52.48 percent to 75 percent.
The offer is 600 rupees per share, a premium of approximately 29.5 percent over the mandatory floor price required under Indian regulations, 26 percent to average share price over the last month, Unilever said. If fully subscribed, it will cost 292 bln rupees ($5.4 billion).
Hindustan Unilever distributes brands includes Lux, Lifebuoy, Pond’s, Vaseline, Lakmé, Dove, Sunsilk, Brooke Bond, and Knorr.

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