Godrej Consumer Products today announced that it has acquired the remaining 51% stake in Godrej Sara Lee Limited from its JV partner Saralee Corporation, USA for €185 million or Rs. 1055 crore.
Sometime back I worked on trying to figure out the expected value of Godraj Sara Lee Limited deal. Am sharing the same here, hope it is useful.
Godrej Sara Lee Limited or GSLL, a 49:51 unlisted joint venture company between the Godrej Group and Saralee Corporation, USA, was incorporated on April 10, 1987. It is involved in the business of manufacture and marketing of mosquito repellants, air care, hair care, shoe care and home care products. The company owns popular brands like GoodKnight, Jet, Hit, AmbiPur, Brylcreem and Kiwi.
Godrej Consumerbiz Limited, a subsidiary of Godrej & Boyce Manufacturing Company Limited held 29% of GSLL shares and Godrej Hygiene Care Private Limited, a subsidiary of GIL held 20% of GSLL shares. Pursuant to a scheme of amalgamation, Godrej Consumer Products Limited (GCPL) bought this entire stake and now holds 49% stake in GSLL. For this, GCPL issued 30,296,727 equity shares of FV Re.1 to Godrej & Boyce Mfg Co Ltd and 20,939,409 equity shares of FV Re.1 to Godrej Industries Ltd. GCPL announced the amalgamation on May 27, 2009; we assume this to be the D-day of the deal valuation.
Calculations point that the shares offered by GCPL for GSLL were worth Rs. 846 crore on the day of the deal announcement, valuing Godrej Sara Lee at Rs. 1726 crore or 16.5 times its 2008-09 earnings.
In 2008-09, GSLL had sales of Rs 755 crore and a net profit of Rs 105 crore. Taking the most bearish estimates, I believed that GSLL could end 2009-10 with sales of Rs. 810 crore and a net profit of Rs. 115 crore. Assigning the same PE (of 16.5 times) to this, I arrived at a revised valuation of Rs. 1890 crore for GSLL. I also took into account the fact that Godrej could possibly end-up paying 10-15% more than this to Saralee Corporation due to: 1) better valuations in the equity markets; 2) premium for 100% control and 3) lucrative price offers by third parties.
However, as per the company announcement made today, it seems that the tide turned in favor of Godrej. In 2009-10, GSLL had sales of Rs 965 crore and a net profit of Rs 137 crore, way above my estimate of Rs. 810 crore and Rs. 115 crore. At Rs. 1055 for a 51% stake, GSLL was valued at just about 15 times its 2009-10 earnings.
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