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Unilever Open Offer Nets $3 bn, Gets Them To 67%

Unilever’s open offer for Hindustan Unilever (HUL) shares has been completed, with them acquiring about 32 cr. (320 million) shares at the price of Rs. 600. (Read: Should you tender shares in Unilever’s open offer for HUL?)This brings in about 19,000 cr. from outside – about $3 billion of dollar inflows – into India. Here’s the press release:

Hindustan Unilever’s share zoomed to beyond the offer price, at Rs. 607 now, having reached Rs. 615 earlier today. I am not naive enough to say this is a “stamp of approval” or a “temporary move”. We don’t know until we know, and till then we don’t know, so let’s just say the stock moved and surprised many people (like me) who believed it wouldn’t go up. It’s just a wiggle in the whole chart.

While the 19,000 cr. worth of money is good and adds $3 billion to inflows, nearly half the non-promoter holding was with Foreign investors. If they tendered shar, then some of that dollar inflow will soon be dollar outflow as well. Meanwhile the USDINR is at 60.40 today, an all time high.

HUL’s free float (non promoter shareholding) comes down from 48% to 32%, and that will change its weight in the broad indexes which are based on the free float market capitalization of stocks. the indexes by about 1%.

HUL Free Float (cr. shares) Price Free Float Market Cap (Cr.)

Nifty    Weight      

Sensex Weight

Pre-Offer  102.76 590 60,629.75 3.20% 3.92%
Post-Offer  70.79 607 42,970.96 2.31% 2.63%
Change       -0.89% -1.29%

This will require index funds to eventually sell HUL to the extent of 1% of their AUM. Index funds have an AUM of only 1,500 cr., so this is a minor impact (HUL trades over Rs. 100 cr. daily).

The question of whether it was useful to have sold HUL will probably be answered next month, by which time its next results will be in, we’ll know how the monsoon is doing. While FMCG remains a good sector, I would rather buy Godrej or ITC compared to HUL.