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

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 same [5].

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.

Author: Kanay Pisal, Intern at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at pratistha@iiprd.com.

References:

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

[2]  

[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

 

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