Tomco HLL Merger: Submitted by Akhilesh Dalal
Tomco HLL Merger: Submitted by Akhilesh Dalal
Tomco HLL Merger: Submitted by Akhilesh Dalal
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:
(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
1,600
1,200
800
400
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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