Confirming months of media speculation that the joint venture between Godrej Industries Ltd (GIL) and The Hershey Company of the US is on the rocks, GIL board today approved various possibilities including referring the joint venture to the BIFR or exiting from the company partially or fully.
The joint venture was formed in 2007, a year after Godrej took over the confectionery company Nutrine, based in Chittoor (Andhra Pradesh). Godrej Hershey Ltd (GHL) operates in the food and beverages space.
In a notification to the stock exchanges today, GIL said its board decided to explore various possibilities for restructuring Godrej Hershey Ltd, which is ‘potentially sick’. The board approved looking at various possibilities and / or any combination for restructuring its shareholding in GHL, including but not restricted to referring GHL to BIFR and / or sale of entire / partial investment held by the company in GHL, the statement said.
According to the Godrej JV company Web site, the company has a presence both in the chocolate segment (hard candy, éclairs, toffee, lollipop and roll formats), and in the beverage segment with brands such as Jumpin (Fruit Drinks), Xs (Juices and Nectars) and Sofit (Soya Milk). The Hershey Chocolate syrup was added to the beverages portfolio in 2008.
While the chocolate factory is located in Chittoor in Andhra Pradesh, the beverages manufacturing plant is in Mandideep (Madhya Pradesh).
There have been media reports in the past few months about an impending break-up of the alliance between the two groups. The reports indicated that The Hershey Co was aiming to go it alone in the confectionery business. At present while Hershey has a majority stake of 51 per cent in GHL, Godrej Industries has 43.4 per cent with A. Mahendran, a Director in GHL, holding the balance equity.
But Godrej Industries Ltd’s announcement has come as a surprise because according to earlier reports, it was its JV partner which was planning to walk away from the alliance. Media reports had hinted that IL&FS Investment Managers Ltd (IIML), which was the private equity arm of Infrastructure Leasing & Financial Services, was involved in buying out Hershey's stake in the JV.
This is not the first time that an alliance between a Godrej group company and its foreign partner has been on the rocks. In the past, Godrej group companies have ended their alliances with various partners including Procter & Gamble, GE Appliances and Pillsbury to market different products in the country.
Incidentally it was from IL&FS Investment Managers Ltd (IIML) that Hershey had acquired a 40 per cent stake in 2007. Hershey purchased 11 per cent stake in GHL from other stake holders to hike its holding to 51 per cent. The value of the investment made was not officially disclosed. GHL is an unlisted entity.