HUL’s Acquisition of GSK Consumer Healthcare: A Hefty Rise in Intangible Assets

In January 2019, the Competition Commission of India approved a significant merger in India’s fast-moving consumer goods industry. The merger between Hindustan Unilever Limited (HUL) and GlaxoSmithKline Consumer Healthcare Limited (GSKCONS) took place in April 2020. The deal helped HUL strengthen its food and refreshments business and diversify into the health food drinks market. The hefty purchase price paid for the merger led HUL to record massive goodwill and other intangible assets that had previously not been recorded on GSKCONS financial statements. An investor researching the merger noticed these drastically increased values and wondered how a product company could have such high intangible assets on its balance sheet. What was HUL’s strategic motive in the merger? Had it acquired some right-to-use assets from GSKCONS that had led to an increase in other intangible assets? What were the potential sources of value from the merger? Would the merger benefit HUL in the long run?

This case is suitable for graduate- and postgraduate-level courses on introductory accounting, advanced accounting, advanced financial reporting, financial statement analysis, business valuation, corporate finance, and mergers and acquisitions. It introduces students to accounting for intangible assets in general and for indefinite-life intangible assets like trademarks and goodwill in particular. It provides an opportunity to understand how mergers and acquisitions are accounted for in the financial statements of acquiring companies. After working through the case and assignment questions, students will be able to do the following: <ul><li>Explain how goodwill arises in an acquisition and how it differs from internally generated goodwill, which cannot be recorded as an asset per the accounting standard.</li><li>Calculate goodwill as it is recorded at the time of acquisition and as it is subsequently treated in the form of impairment testing.</li><li>Identify strategic factors that should be considered before a merger decision is taken to determine whether inorganic growth is good for a company. </li><li>Differentiate between finite-life and indefinite-life intangible assets.</li><li>Identify the method used to account for intangibles like brands and goodwill, and explain why this asset can be recorded on the books of acquiring companies only in mergers.</li></ul>

• Intangible assets
• merger and acquisition
• Trademarks
• Accounting for intangible assets
• Goodwill
• Amortization