By Ben Hirschler
LONDON (Reuters) - Unilever (L:ULVR) is to buy GlaxoSmithKline's (L:GSK) Horlicks nutrition business for $3.8 billion, boosting the Anglo-Dutch group's position in India with the addition of the malted drink.
The deal, announced on Monday, increases the consumer goods giant's footprint in one the world's fastest-growing economies and marks a notable addition to the portfolio by outgoing Chief Executive Paul Polman, who steps down in January.
For GSK boss Emma Walmsley, it is a chance to further streamline operations and generate cash for increased investment in pharmaceuticals.
The sale follows a competitive auction in which Unilever saw off rival Nestle (S:NESN), as well as earlier interest from Coca-Cola (N:KO).
The transaction covers GSK's health food and drinks portfolio in India, Bangladesh and 20 other predominantly Asian markets. The business has annual sales of around 550 million euros, primarily through the malt-based Horlicks and Boost brands.
Horlicks comfortably dominates the health-drinks market in India and Unilever is expected to try and give it a fresh lease of life, following a slowdown in sales growth in recent years.
HUL finance head Srinivas Phatak told reporters he expected the business to grow at a double-digit percentage rate in the medium term, boosting both earnings and profit margins.
GSK's decision to sell the business follows its $13 billion acquisition of Novartis's (S:NOVN) stake in the two groups' consumer health joint venture earlier this year. GSK said at the time that selling Horlicks could support the funding of the Novartis buyout.
The main asset being sold is GSK's 72.5 percent stake in Indian-listed GlaxoSmithKline Consumer Healthcare (NS:GLSM).
Unilever said its 3.3 billion euros ($3.75 billion) consideration would be paid in cash and shares in its subsidiary in India, Hindustan Unilever Limited (HUL) (NS:HLL).
Shares in both Indian companies rose more than 4 percent on Monday.
GSK said its net proceeds from the deal, after tax and hedging costs, were expected to be around 2.4 billion pounds ($3.1 billion).
Following the closure of the deal, which is expected in around 12 months, GSK will own approximately 5.7 percent of HUL and the British drugmaker intends to sell this down in tranches.
The price being paid for the GSK business is broadly in line with expectations. People familiar with the process had told Reuters it was likely to be sold for less than $4 billion.
GSK was advised by Morgan Stanley (NYSE:MS) and Greenhill, while BofA Merrill Lynch worked with Unilever.
Horlicks traces its history back to 1873, when two British-born men, James and William Horlick, founded a company in Chicago to manufacture it. It was taken to India by soldiers who had fought with the British Army in the First World War.
Sold as a bedtime drink in Britain, it was developed into a much bigger brand by GSK in India, although more recently its growth as slowed as urban Indian consumers turn to healthier, less-sugary alternatives.