29 January 2004	Thursday	06 Zilhaj 1424

KARACHI, Jan 28: Both Unilever Pakistan and their financial adviser Hong Kong and Shanghai Banking Corporation (HSBC) are keeping their cards close to the chest on the number of prospective buyers and the mode of sale of the company's Dalda business.

The last date for bids from prospective buyers was January 15, which was latter extended to January 22. It is long since known that Unilever Pakistan, would follow the Hindustan Lever's way: divest the Dalda business. But the modalities are still unclear.

In response to Dawn's queries on how many bids from prospective buyers had been received by the company; what would be the criteria for short-listing prospective bidders; would the company sell Dalda to one party on a negotiated basis or through open bidding as is being done by the Privatization Commission and whether the company had a date in mind for the completion of transaction, Unilever Pakistan's GM Corporate Affairs Mr Sher Afzal Mazari declined to answer specific queries citing SECP rules of Corporate Governance.

But he did say: "Unilever Pakistan is currently assessing the future of Edible Oil Business, which may include a possible sale. This review is driven by the need for Unilever Pakistan to focus on developing its core businesses that are vital for its long term future. Internationally, Unilever has divested from its Edible Oil Business, as this is not central to the development of its future global strategy and that Unilever Pakistan remains committed to continuing operations in Pakistan and to the growth of its core businesses."

Shahab Farooq, analyst at First Capital Equities observed that the Dalda sell-off was likely to result in a one time cash inflow in 2004 for the company and a high cash dividend for the year and improved profitability in the longer run. According to Naveed Ahmed at Elixir Securities, divestment of edible oil segment would result in a one-off cash payout of Rs65 per share.

Unilever Overseas Holding Limited, London, is the largest shareholder in its Pakistani subsidiary with 66.8 per cent of the 136 million outstanding shares. But there are also some 4,837 small shareholders in the company that control 9.16 per cent of the equity. The Unilever Pakistan stock trades at the highest price, among all scrips quoted on the Karachi Stock Exchange; the current price running at Rs1470 for the 50-rupee share.

In case the company opts to sell to the highest bidder through an open process, every 100 rupee that the company can secure in the sale price of Dalda would bring a gain of Rs7.50 for each share held by the shareholders, which is why small investors would be banking on the company to extract maximum price for its famed brand of ghee.

And not everyone was regarding the edible oil business to remain bad for ever. The downturn was visualised by many to be, but, "cyclical". Stock brokerage firm, AKD Securities, in its report stated that about 19 prospective buyers had expressed interest in acquiring Dalda. These included Saffola Group, Candy Land, Habib Oil Mills, Lakson Group, Avon, Fauji Foundation and Zulfiqar Industries. "We expect the bidding price should range between Rs900 million to Rs1 billion," said Muneeza Imtiaz at AKD Securities.

But it has to be seen whether the company adopts the open bidding process or the other approach of selling to one party on a negotiated basis. Under the latter mode, the seller chooses a party based on the criteria that does not include price but other considerations such as whether they are a competitor in other businesses to the seller. Such approach is also practised in private businesses to sell strategic assets as the decision to sell is quickest in this method. Mr Sher Afzal Mazari, the company's GM Corporate Affairs, however, affirmed: "The interests of Unilever Pakistan's partners, shareholders and employees of the Edible Oil Business are an important factor in this review."

Unilever Pakistan Limited-the largest listed Fast Moving Consumer Goods (FMCG) company-would unveil financial figures for the year 2003 on Thursday, as the Board was scheduled to meet a short while after the close of the stock market on Wednesday.

Equity analysts were projecting profit after-tax to range between Rs1626 (First Capital Equities); Rs1633 (AKD Securities) to Rs1645 (Elixir Securities). But almost everyone was looking at decline in earnings of between 6 to 7 per cent.

Analysts' may have differed on how much would be the drop in earnings, but not on why it would be so. Edible oil business was seen as making the major dent.

Analysts listed the reasons for depressing performance of edible oil as "rising costs, higher discounts and rebates given by the company to remain competitive." Analysts said that the company was facing almost a loosing battle with the combined pressure from smuggled, unbranded and competitive local ghee and cooking oil brands. Naveed Ahmed at Elixir Securities says: "The sell-off of this cyclical business would be a breath of fresh air for Unilever, as we expect company's overall margins to improve by 250-350 bps after the divestment."