Hindustan Unilever sells Modern Foods to Switz Group
Middle East-based Switz Group, owned by Mumbai’s Khorakiwala family, is set to buy Modern Foods from Hindustan Unilever (HUL), bringing an end to the Anglo-Dutch MNC’s seven-year ordeal with the country’s first PSU divestment.
By Anto T Joseph & Kala Vijayraghavan, TNN |
MUMBAI: Middle East-based Switz Group, owned by Mumbai’s Khorakiwala family, is set to buy Modern Foods from Hindustan Unilever (HUL), bringing an end to the Anglo-Dutch MNC’s seven-year ordeal with the country’s first PSU divestment.
According to people close to the development, the about Rs 100-crore deal is expected to be announced shortly. Switz Group, a foods major with operations in Dubai, Saudi Arabia and Muscat, is owned by Taizoon Khorakiwala, the youngest son of Fakhruddin Khorakiwala, the former Mumbai sheriff. The Khorakiwalas own and operate the Wockhardt and Akbarallys group of companies and the Monginis brand of bakery products.
Incidentally, HUL insiders see Modern Foods as a symbol of how their famed management culture and systems came a cropper in the face of a hidebound PSU culture. As soon as HUL achieved break-even last year after a “Herculean effort”, it tried to sell off the business, but failed to find a buyer. It then merged Modern Foods with itself. Recently, it gave Lazard India the mandate of selling the popular brand and its distribution channels.
Sources said Switz, which operates in east India through a 51:49 joint venture with Kolkata-based Arnab Basu, has lined up major plans for the country. It already operates 105 outlets in Greater Kolkata with two factories and has set up three other factories at Siliguri, Bhubaneshwar and Bangalore. Incidentally, Mr Basu, a former HUL hand, is understood to have been instrumental in working out the deal.
A senior investment banking official said HUL has chosen Switz from three offers it received. “However, there is many a slip between the lip and the cup,” he said.
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When contacted by ET, HUL’s official spokesperson said, “We do not comment on speculations.” Efforts to contact Taizoon Khorakiwala were futile. However, senior Switz officials said they were in final round of talks with HUL. Sources said HUL is not selling the plant and real estate as part of the deal. It would also retain the manufacturing facilities. ET had reported on November 5, 2007 that HUL had put Modern Foods on the block and it had received three “acceptable” offers from strategic players. In January 2000, Hindustan Lever (HUL’s earlier moniker) had turned out to be the sole bidder for Modern Foods India Ltd. It paid Rs 105.45 crore, as per the valuation exercise undertaken by its valuer ICICI, for 74% of the shares along with an agreement to invest Rs 20 crore more in the troubled bread maker.
Subsequently, the government exercised its ‘put’ option to sell the remaining 26% to HLL for Rs 44.07 crore on November 28, 2002. Since the acquisition, HUL had been struggling with the bakery unit. High costs and an unmanageable work force in the low-margin business had made it an ‘indigestible’ deal.
Senior HUL officials said the acquisition was a complete misfit with the HUL culture and systems. The company had admitted that the acquisition was a mistake on account of improper due diligence. “The failure of the business is the result of a wrong strategy, a culture misfit and HUL’s inherent lack of capability in handling the bakery business. To turn around a new business calls for innovative ideas and an open mind which is completely absent in HUL,” said a former HUL senior official, who worked in the foods division.
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Early in 2006, HUL had put the company on the block, but failed to clinch a deal owing to valuation issues. Sources said bidders walked out because of disagreements over the high valuations demanded by HUL for the loss-making unit. Subsequently, in September 2006, HUL merged Modern Foods with itself, after increasing losses rendered it a BIFR case.MFIL’ product portfolio includes many kinds of breads including ones on the health and wellness platform, bar cakes and bread rusks. The division has 6 manufacturing locations across the country—including Mumbai, Bangalore, Chennai, Kochi, Kolkata and Hyderabad—and 40 franchisees.
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