Jun 24, 2013 08:22 AM IST | Source: CNBC-TV18

Unilever open offer sparks debate on sale of shares in HUL

CNBC-TV18‘s Pragya Bhardwaj reports that HUL open offer at Rs 600 sparks debate on the sale of shares.

Unilever's announced its USD 5-billion open offer for HUL on Friday. The open offer will close on July 4. There has been no revision to the open offer price of Rs 600 per share, reports CNBC-TV18's Pragya Bhardwaj.

It is a very important open offer, not just for the company but also for the economy given the sheer size of the offer. It is the largest open offer for an Indian company by a global parent. The verdict on whether investors would tender in their shares or not it is a split.

One faction argues that investors should tender in their shares, given the current state of the market, at Rs 600 per share. Though the valuations are extremely expensive, the stock is to trade at 36 times FY14 and earnings per share (EPS) being one of the highest multiples in consumer space, the demand slowdown in the consumer discretionary and staples is most likely to cause the stock to correct. The stock has rallied only because of the open offer announcement and will return to the Rs 480-level which offers further opportunities for investor forays.

Analysts also point out that investors will have to pay a 10 percent long-term capital gains tax and added with the indexation amount, the tax works out to 20 percent.

Another faction argues against selling a stock of a company which is of the highest pedigree, has good cash flows and has consistently offered high dividend yields and returns for decades. Experts add, "If the Unilever management has given this kind of a premium amidst such a dull environment, they are for sure seeing something that the investors are not pricing in."

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