India: Looking Into The Deal Between GSK – Hindustan Unilever And What Ensues From The Same

Last Updated: 22 January 2019
Article by Kanay Pisal
Most Read Contributor in India, January 2019

INTRODUCTION

Recently,  in the first week of  December 2018, Hindustan Unilever announced  a merger with the local unit of GlaxoSmithKline.  The said deal is estimated to be of around $ 3.8 Billion and is anticipated to bolster the FMCG company's (Fast Moving Consumer Goods)  (HUL ) position in the Indian market  significantly.  The deal involves the FMCG  giant Hindustan Unilever Limited (HUL) and GlaxoSmithKline's Indian nutrition business.1

Hindustan Unilever Limited (HUL) is India's largest FMCG company and enjoys a long heritage in India, i.e. about almost 80 years. HUL claims that on any given day, about 9 out of every 10 Indian households use its products.2 HUL is a subsidiary of Unilever, a British – Dutch company . Some of the products that HUL manufactures include beverages, personal healthcare products, cleaning agents , and water purifiers. India happens to be the second  largest market for Unilever globally.

On the other hand, GSK is a science-led healthcare company which has its operations across the globe. In India, GSK enjoys an extensive product portfolio which encompasses prescription medicines and vaccines.3

THE GSK- HUL DEAL

The present deal of a whopping  $3.8 Billion is important in many respects. The move shall help HUL consolidate its position in India. As a consequence of this deal, popular health drinks like Boost, Maltova and Horlicks shall move to the HUL camp.4

 The present transaction  is an all equity merger and 4.39shares of HUL shall be allotted for every share in GSK Consumer Healthcare India. GSK's other group companies shall continue holding 5.7 percent of the merged entity and are being expected to sell these shortly.

To successfully complete the deal, Cyril Shroff ,  Nivedita Rao and Ramgovid Kurupath acted for Hindustan Unilever, while Vinati Kastia, Ajay Bahl and Bharat Bhudolia acted for GlaxoSmithKline.

However, in this deal , Steer Engineering has approached the Delhi HC wanting appropriate protection for its Intellectual Property and to stop transfer of its IP post the acquisition of GSK Consumer Healthcare.

WHAT FLOWS FROM THE DEAL?

The said deal if successfully completed , shall be a win-win situation for both GSK and HUL. The deal shall help HUL strengthen its refreshment and food business as HUL shall enter the Health Food drinks which has seen  the entry of several global as well as Indian companies of late. It is estimated that HUL's food and refreshment business which currently stands at 6500 crore (with brands like Knorr, Kissan and Kwality) would rise to 10000 crore, as GSL CH's annual sales is about 4200 crore .  Also, post the deal, GSK's losing market share and the threat of competition from other Key players like Mondelez International (Bournvita), Pediasure (Abbott Nutrition) and Complan (H.J. Heinz) shall be effectively dealt with.

However, the impending suit filed by Steer Engineering might actually affect the deal in some or the other manner. Steer Engineering claims that it has rights to protect its IP against transfer to any third party and its rights created in the technology.

ELEMENT OF IP IN THE GSK – HUL DEAL

After the announcement of the said deal between HUL and GSK CH, Steer Engineering has moved to the high court wanting appropriate protection  for its rights. It claims that it has provided certain important IP to GSK and it has rights over the same upon the transfer of the same to third parties.

Steer Engineering claims and contends that it was a result of its extensive efforts on hardware and  machine components  that certain important technology were developed . The company claims to have provided  GSK with the relevant technology that enabled scaling up of the "Two Twin Extrusion Process being employed by it". It further contends that, in the light of the Development Services Agreement and the Task Order between GSK and itself,  the company is entitled to protect the technology in case, it were being transferred to GSK by the same5.

Presently, the matter is sub-judice before the Delhi HC.  The court has agreed to give some time to the counsel on behalf of GSK to seek instructions and conclusively establish that the technological know-how and the IP owned by Steer Engineering (Petitioner) was being transferred to the third party. Also, it instructed GSK to file its response on an affidavit in the said matter and until then, its status quo order had to be maintained

 IP ISSUES IN ACQUISITIONS

Intellectual Property is an important element of Acquisitions and Mergers now a days. Also the understanding of IP of M & A that we use cannot be said to be restricted to Patent or Trademarks but even technology. A lot of times, an important reason of M & A, is the company's goodwill and IP.  However it is not always so that the IP comes as  a part and parcel with the mergers and acquisitions. Due diligence must be observed while taking over, in mergers and even in acquisitions.6

It might happen that that as a result of a contact between two parties, the entity attempting acquisition might not be able to use the IP as becomes the third party in such a case and  the IP might be protected from the third party's exercise of rights over the same.

A popular dispute involving absence of due diligence was the long lasting and extended battle  before the European Commission  involving Volkswagen, BMW and Rolls Royce Motor Cars.   [7]The matter involved Volkswagen purchasing the assets of Rolls Royce and Bentley automobiles for several millions. However, it was only upon the closure of the deal that Volkswagen realized that the IP assets did not include the right to use the trademark of Rolls Royce as the same was owned by Volkswagen's competitor car maker BMW. Thus, IP due diligence plays a very crucial role in the cases of M & A.8

Similarly, the issue of IP due diligence is quintessential in the present case between GSK and HUL. The previous contract or agreements between Steer Engineering and GSK shall play a decisive role to play in the unfolding and the execution of the present deal between GSK and HUL.

CONCLUSION

As has been discussed, the two companies GSK CH and HUL, when combined, shall have a very important role to play in the market. However for an effective exploitation of the said deal, it is imperative that HUL enjoys atleast certain basic IP rights of GSK. What exactly is the mater in dispute and to what an extent the problem  persists is something that is confidential atleast until the matter is pending before the court. What eventually emanates from the deal and the legal battle shall be a matter to wait and watch. The next hearing in the said matter is scheduled before the Delhi HC on 23 January 2019.  Let's hold back and wait until then.

Footnotes

https://www.legallyindia.com/corporatemna/3-8bn-blockbuster-deal-cam-azb-help-hul-buy-gsk-india-s-horlicks-biz-20181203-9668

2  https://www.hul.co.in/about/who-we-are/introduction-to-hindustan-unilever/

3  https://india-pharma.gsk.com/en-in/about-us/

4  https://www.thehindubusinessline.com/companies/hul-to-acquire-horlicks-maker-gsk-ch-india/article25653550.ece

5 https://barandbench.com/gsk-hul-deal-steer-engineering-transfer-ip/

6 https://blog.ipleaders.in/ip-issues-in-ma/

7 https://www.ipeg.com/how-to-avoid-another-rolls-royce-ip-due-diligence-in-ma-transactions/

8 https://uk.practicallaw.thomsonreuters.com/7-100-8290?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions