TOMCO HLL Merger

Submitted by
Akhilesh Dalal (907)
 FMCG sector
• The Indian FMCG sector with a market size of US$13.1
billion is the fourth largest sector in the economy.
• A well-established distribution network, intense
competition between the organized and unorganized
segments characterize the sector.
• To grow by 60%
• Increased focus on farm sector will boost rural
incomes, hence providing better growth prospects to
the FMCG companies.
 Tata oil mills company ( TOMCO)
• TOMCO was incorporated as a public limited company on December
10, 1917.
• It was engaged in the manufacture and marketing of
– Soaps
– Detergents
– Glycerin's
– Vanaspati
– edible oils
– toilet preparations
– cattle and poultry feeds
– oil cakes
– deoiled meals
– fish and fish products.
TOMCO affiliates/associate companies:

 Industrial Perfumes Ltd.

 Tata Vashisti Detergents Ltd.
 Tata Ceramics Kerala Ltd.
 "Kalyani Soap Industries Ltd.
 Tata Oil Company Ltd.
 Background TOMCO
• Listed at Bombay, Cochin, and Madras.
• In 1991 -92, TOMCO's turnover was Rs 425 crore
• It employed about 5,700 people
• Sold 1,66,000 tonnes of soaps and detergents
• During 1991-92, Tata Sons (a holding company for other Tata companies)
decided to review their business strategy.
• Was decided to concentrate on few core areas of competence.
• TOMCO was seen as a company that did not suit the new strategy of Tatas.
• TOMCO was seen as poor in marketing and distribution.
• The raw material cost and wage bill were also excessive.
• The company continued to make losses and in 1992-93
• The dividend was skipped.
 Balance sheet of TOMCO
350
Balance Shee of TOMCO 300
(as on 31 March)
250
1993 1992 1991 200
Assets
150
Fixed assets 31.38 32.57 34.70
Investments 23.39 13.43 16.01 100
1993
Current assets 105.56 178.33 125.01 50
1992
Loans and advances 84.96 72.14 40.54 0 1991
Miscellaneous Expenditure 1.40 1.46 0.62 ts ts ts ts s e al s al s s s s al
Total 246.69 297.93 216.88 sse sse en sse ance itur Tot ilitie apit rplu loan loan ilitie Tot
A d a tm a v d b C u d b
Liabilities e es ent ad pen Lia are nd s ure ure Lia
d
Fix Inv urr and Ex Sh es a c c t
Share Capital 22.65 22.65 10.88 C s s Se nse rren
a n eou erv U Cu
Reserves and surplus 43.88 43.35 26.16 Lo llan Res
e
Secured loans 85.14 103.22 116.11 isc
M
Unsecured loans 18.34 29.92 1.24
Current Liabilities 76.68 98.79 62.50
Total 246.69 297.93 216.88
 Profit and loss TOMCO
450
Profit and loss statement of TOMCO 400
350
(Rupees in
crore) 300
250
1992- 1991-92 1990- 200
93 91 150
1992-93
Gross Sales revenue 312.24 428.4 382.8 100 1991-92
Other income 59.5 17.73 5.71 1990-91
50
Profit before dep. And int. 27.18 23.20 23.92
Less : Interest 22.63 18.44 14.20 0
Less : depreciation 3.59 3.64 3.18 ue
e t. ax
om in
Profit before tax 0.96 1.12 6.54 en c d ert
re
v in An ft
Less : provision for tax 0.31 - 0.90 s her ep
. ta
ale Ot d o fi
Profit after tax 0.65 1.12 5.64 s S r e Pr
os efo
Gr tb
ofi
Pr
Equity share data TOMCO

31.3.9 31.3.92 31.3.91

3
Face value Rs 10 10 10
Book value Rs 29.75 29.45 36.17
Dividend (%) - 12.5 20
EPS Rs 0.30 0.50 5.19

Distribution of TOMCO shares

22% Tata Group
41% Indian financial institutes owned by government
37% General public

 The market price as on June 17,1993 was Rs

52.50 per share.
 Hindustan lever Limited
• HLL was incorporated as a private limited company on October 17, 1933 and
was converted into a public Limited company on October 27, 1956.
• It is a subsidiary of the Anglo-Dutch international giant Unilever.
• HLL is engaged in the manufacturing and marketing of soaps, detergents,
toilet preparation, basic chemicals, fertilizers, and other agricultural inputs.
• HLL is also a recognized export trading house.
• HLL’s presence in the Indian soaps and detergents market is truly dominant:
some of its brands such as ‘Lifeboy’, ‘sunlight’, ‘Lux’ ‘Rin’ and ‘surf’ are
household names in India.
• These brands are also unilever’s international bands.
• It was generally opined that HLL’s brands did leave gaps in the product line.
• In fact, Nirma exploited this weakness of HLL fully in the 80s.
 Affiliates/associate companies of HLL

• Brooke Bond India Limited

• Lipton India Ltd
• Pond's India Ltd
 Background HLL
• The HLL equity shares are listed on stock exchanges at
Ahmedabad, Bombay, Calcutta, Cochin, Delhi and
Madras.
• Between 1984 and 1992, HLL's gross turnover grew at
16 per cent
• The profit before tax grew at 18 per cent per annum
• The profit after tax showed an annual growth rate of
about 21 per cent per annum
• During 1956-1992, a period of 37 year, HLL earned
profits and declared dividend in every year.
 SWOT analysis of HLL
• Strengths
• HLL enjoys a formidable distribution network
covering over 3400 distributors and 16 million
outlets.
• This helps them maintain heavy volumes, and
hence, fill the shelves of most outlets.
 Weakness
• HLL's market dominance, originating from its
extensive reach and strong brand presence, allowed it
to raise the prices even as raw materials were getting
cheaper.
• Hence, though the volumes decreased, the margins
grew, and company was able to earn more profits.
• But higher margins attracted competition in areas of
operations.
• HLL's strategy remained focused on creating power
brands and earning higher margins.
 Opportunities
• India is one of the world's largest producer of FMCG goods but its
exports are miniscule as compared to production.
• Though Indian Cos. have been going global, their focus is more towards
Asian countries because of the similar preferences.
• HLL is one of the top companies exporting FMCG goods from India.
• An expansion of horizons towards more and more countries would help
HLL grow its consumer base and henceforth the revenues.
• Opportunity in Food Sector - The advent of modern trade has opened up
greater opportunities for HLL to diversify its brand and strength its food
division.
• It could look at introducing products from its parents stable like
margarines and could also look at expanding its Knorr range of products.
 Threats
• ITC has reduced its dependence on the cigarettes business -
Contribution of the core business in revenues has come
down from 87% in FY99 to 70% in FY05.
• Over a period of five years, ITC has extended its presence
into areas like foods, retailing, hotels, greetings, agri, paper,
etc.
• These are businesses that can give it growth impetus in the
long run.
• With ITC gaining momentum in each of these businesses, it
is turning into a consumer monolith, and hence, the
greatest threat to HLL's Business.
 Balance sheet HLL
HLL’s Balance Sheet 1990-
1992 700
(as at 31 March)
(Rupes in Crore) 600
1992 1991 1990 500
Assets 400
Fixed assets
Investments 222.75 193.53 179.19 300 1992
1991
Current assets 12.24 7.60 8.52 200 1990
Loans and advances 597.74 533.49 441.34
100
Total 96.83 76.06 75.47
Liabilities 0
Share Capital 929.56 810.68 75.47
Reserves and 139.99 139.99 93.22
surplus 193.31 151.11 162.06
Secured loans 93.32 77.31 80.00
Unsecured loans 106.96 87.44 79.07
Current liabilities 395.98 354.83 260.07
 Profit and loss HLL
Profit and loss account of Hindustan Lever

(Rupees In Crore)
1992 1991 1990
Gross Sales revenue 2,86.87 1,776.32 1,460,27
Other income 12.00 6.16 5.99
PBDIT 217.77 177.52 146.30
Less :interest 32.19 20.63 18.31
Less : depreciation 19.60 19.19 17.25
Profit before tax 165.98 137.70 110.74
Less: Tax Provision 67.50 57.50 52.00
Profit after tax 98.48 80.20 58.74

250

200

150
1992
1991
100 1990

50

0
Other income PBDIT Profit before tax Profit after tax
 Equity share data for HLL
Equity Share Data for HLL
(Rs)
1992 1991 1990
Face Value 10 10 10
Book Value Per Share 23.8 20.75 27.36
Dividend (%) 42.% 38.50% 42%
EPS 7.03 5.73 6.29

Foreign shareholding 51.16%

FIs 16.79%
Public 32.05%

 The share capital of HLL as on December 31, 1992 was Rs

140 crore
 The market price as on June 17, 1993 was Rs.375 per
Share.
 For 1991 and 1992 enlarged capital base to bonus issue of
1:2
 Sales mix HLL and TOMCO
1991 – 92
(Rupees in crore)
HLL TOMCO
Soaps, detergents, and related items 1,219 270
Chemicals and agro 236 85
Personal products 302 67
Total 1,757 322

1,600
1,200
800
400
0 HLL
s ro ts l
m ag uc ta TOMCO
ite d d To
ed an ro
elat l s alp
d
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n
an em r
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 The merger
• 90% of the shareholding power agreed to
merger -sec 394-391 of companies act
• 2 shares of HLL to 15 shares of TOMCO face
value Rs.10 - valuation techniques.
• Experts examined the valuation on 3 criterias
– Comparison of book value of asset per share
– Market price on date
– Present value of the future cash flows of the two
companies if merger did not take place.
 Accounting of merger
• In the account for the year ended December 31, 1994 the following notes
appear with regard to the merger of Tomco:
• Pursuant to the scheme of amalgamation of the Tata Oil Mills Company
Ltd. (Tomco ) with the company sanctioned by the Hon'ble Bombay High
Court
• During the year, the assets and liabilities of Tomco were transferred to and
vested in the company with retrospective effect from 1st April 1993
• The amalgamation has been accounted for under the ' pooling of interests
' method and, accordingly, the difference, aggregating Rs 6,74.76 lakh
being the net assets taken over less the paid-up value of the shares of the
company issued and other reserves assumed, has been added to the
company's General Reserve.
• The Share Swap Ratio Tomco Share Capital: Paid-up equity capital
2,15,04,849 @ Rs 10 each Ratio: for every 15 Tomco = 2,15,04,848 2 / 15
Shares two HLL shares = 28,67,314 shares in HLL
 HLL Tomco
1. Date of 17.10.1933 10.12.1917
incorporation
2. Business Soaps detergents, toilet Soaps detergents, toilet preparations,
preparations, basic chemicals, glycerine, vanaspathi, edible oils, soaps,
fertilizers, agri.inputs, export house cattle and polutry, feeds, oil cakes,
deoiled meals, fish and fish products
3. Maharashtra, West , J, Madhya Maharashtra, West Bengal, Kerala, Uttar
Manufacturing Pradesh, Uttar Pradesh , Karnataka, Pradesh, Bihar, Gujarat, Tamil Nadu.
Units in Punjab, Andhra, Tamil Nadu, New
Delhi, Pondicherry
4. Capital as at 31.12.92
Equity Rs 139.99 crore Rs 21.51 cr.
Preference -- Rs 1.15 cr.
5. Shareholding pattern
Foreign holding 51.16 % -----
F.Is 16.79 % 40.84 %
Corporate bodies --- 22.87 %
Public 32.05 % 36.29 %
6. Equity share data 31-12-92 31-03-93
Face value in Rs 10 10
Book value per share 23.80 29.75
Dividend 42 % ----
E.P.S. 7.03 0.30
Market price as on 17-06-93 Rs 375/-
 Synergies of the merger
• Access to the Indian markets
• Enhanced HLL market share
• Using the brand they launched various variants in
different products.
• With Lyril freshness concept was leveraged with Lyril
liquid gel
• Life boy brand was leveraged using stretching it to
different segments.
• Similarly for Le-cancy, Rexona etc.
• Rural market was exploited with 75gm soap bars.
 Perception of laborer
• Hll labor felt that their bargaining power will
weaken
• TOMCO labors felt that they will be axed as a
direct consequences of the synergy
• HLL was known to be tough employer
• Job insecurity in TOMCO as they thought that
they will thrown out after the merger
 Perception of the consumer
• Will create a monopoly in market
• Consumer interest will be lost
 Terms of the merger
• Swap ratio
• Up gradation of TOMCO to technological front
that included investment of 50 cr from
TOMCO
• Tenancy rights in some of the TOMCO assets.
• Uni levers 51% shareholding
 Competition for HLL
• In June 1993, Nirma's Karsanbhai Patel made an attempt to
put a spoke in the wheel. He was planning to put in a counter
bid of Rs 75 per share, a price more attractive than the
valuation of Rs 52 implied in the exchange ratio of 2:15.
• Highly placed sources at TOMCO confirmed in June 1994 that
Godrej Soap had also made a bid to take-over TOMCO
although no concrete terms had bee discussed
• But a TOMCO executive stated that these moves were too late
and were to make delay in the proceedings
 Law suits
• Shareholders of TOMCO
• Labors of TOMCO
• Consumers of TOMCO
• Workers of HLL
 Between law suits: Phase 1
• Production shifted from the Sewree plant to the new cost efficient Tata
Vashisti plant at Chiplun
• Reducing the company and stockiest inventory from three months to 15
days.
• To push pipe line stocks, HLL asked TOMCO to cut down produc­tion by
about 30 per cent form March, 1993 to June, 1993.
• The TOMCO oils and fats purchases were connected to the Lever's pur­
chase pool.
• Raw material costs are said to here reduced by about 40 per cent. TOMCO
is said to have gained about Rs 1,500 per tonne on the purchase of oils
and fats through HLL sources.
 Phase 2
• HLL asked TOMCO to concentrate on creating brand pull for select
products.

• The TOMCO management began looking for niches, like hair oils and per­
fumes, to generate profits.
 Phase 3
• Every product was being evaluated from a production point of view and
parameters were developed based on the unit cost of production and the
quality of the product.
• TOMCO’s product quality has to be on par with HLL’s own quality norms
and product costs, as Close to those of HLL’S as possible.
• TOMCO’s production personnel have been reshuffled. About six
manufacturing people form TOMCO are now said to be managing the
show under the guidance from one lever man to each factory.
 After the merger
• Low scale for TOMCO labors
• Gave a VRS scheme to Axe TOMCO workers
• HLL gave very short notices to TOMCO workers
to analyze their options
• No schemes for retraining of retrenched staff
 Post merger
• Lead to market share above 60%
• HLL became a monopoly in Indian FMCG
sector
• Reach to Indian markets.
Thank you