Zydus Cadila set to bag Kraft Heinz portfolio for Rs 4600 crore, announcement likely on Wednesday

Zydus Cadila Group is set to acquire the consumer brand business of Kraft Heinz in India including the children’s milk drink Complan for Rs 4500-4600 crore said multiple sources aware of the developments. A formal announcement could be this week, even as early as Wednesday.

Once selected, Cadila may rope in a private equity partner for financing support. It had sent feelers to PE groups True North, Temasek, Warburg Pincus and Carlyle to partner them and may place its equity in a back-to-back deal. Mails sent to Cadila did not generate a response till the time of going to press. Sources said it has also reached out to some of the domestic banks and financial institutions for funding.

ET on October 11 had reported that Zydus Cadila is the frontrunner for the Kraft Heinz India portfolio. Zydus Cadila is the country’s fourth-largest Indian pharmaceutical company with Rs 11,600 crore in FY18 sales.

Kraft Heinz unexpectedly decided in September had decided to sell the European holding company that houses the India operations and wanted the buyer to absorb the tax losses of that entity, registered in Italy. The original plan was to sell only the Indian operations and brands. The Italian company is held by an arm of the US parent that is registered in the Netherlands. Coca-Cola’ that was previously pursuing the transaction and was the top contender had even made a formal offer offer for the European entity, while Cadila had bid only for the Indian operations but its bid was 10-15% higher than Coke’s.

Kraft Heinz’s consumer business in India spans Complan, talcum powder Nycil, glucose powder drink Glucon-D and Sampriti Ghee. The brands generated approximately Rs 1,200 crore in sales ($190 million), led by Complan and Glucon-D. A diversified portfolio and steep valuations deterred potential buyers such as Danone, Tata Group, Nestle, Dabur, Wipro Consumer and ITC. Kraft Heinz had been seeking about $1 billion for the assets but most bidders baulked at the valuations due to lower growth prospects for certain products amid changing consumer tastes in India.

For Ahmedabad-based Zydus Wellness, the listed consumer business subsidiary of Pankaj Patel-led Zydus Cadila Healthcare, the Kraft Heinz portfolio will add to its existing offerings of personal and skin care, sugar substitutes and health foods. The business, accounting for 4% of the Zydus Cadila Group’s total revenue, grew 7% in FY18 from the year earlier. The three mainstay brands — Sugar Free, Everyuth, and Nutralite — registered faster growth despite challenges such as the rollout of the good goods and services tax (GST).

With consumer beverage preferences changing swiftly in favour of low-sugar or functional options such as juice and juice drinks, flavoured water, dairybased beverages and tea, food and cola companies like PepsiCo and Coke or even over-the-counter (OTC) pharma players like Zydus Cadila have been accelerating portfolio expansion beyond core brands into the fast-growing wellness segment.

JP Morgan and Avendus are advisors to the deal.

The development was reported by retail.economictimes.indiatimes.com

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