“I noticed today Unilever is buying more shares of its separate Unilever India company.

“I recall a few weeks ago you highlighted some research listing all the 'baby' companies who had aristocratic parents. I have been unable to find the article however in your previous articles and I wondered whether you could send to me or post again on your website as it was most interesting”

Eoin Treacy's view Thank you for this question which other subscribers may also have an interest in. I have written about the affiliates of globally oriented companies on a number of occasions but I believe the report you are referring to was the March edition of Iain Little's Global Thematic Investors newsletter. It contained a section on the acquisition of foreign affiliates by their parents and appeared in Comment of the Day on March 28th. Here is a relevant section quoting one of the fund's advisors:

This development naturally raises the question as to whether our MNC subsidiary holdings in India might go down the same route. The risk here would appear to be much lower since stronger legislation exists in India to deter privatisation. Whereas in Pakistan a de-listing resolution must be approved by three quarters of shareholders (since it owns 75% of its subsidiary, Unilever had already cleared this hurdle), the threshold for approval in India is 90%, which is significantly higher than any of the stakes held by the parents of our MNC subsidiaries. Furthermore, controlling shareholders cannot easily reach the requisite 90% holding. In order to get there, they would require the approval of two thirds of the minority shareholders at a price agreed through a process of reverse book building. In 2012 alone, two MNCs, Ricoh and Saint Gobain , have seen their attempts at de-listing fail, as they did not reach the 90%

This article from The Economic Times highlights some additional reasons Autonomies such as Unilever are increasing their positions among their foreign listed affiliates. Here is a section:

Traders say they are expecting open offers, share buybacks or creeping acquisitions in such MNCs. "India is a growing economy and many MNCs see this as a big opportunity for their businesses. Companies like Hindustan Unilever, Nestle, Colgate, GlaxoSmithKline, Pfizer, Maruti and others want to introduce new products in Indian markets."

"However, increasing royalty rates for new licences of products and patents from parent companies are hurting margins of Indian units, thereby depressing share price. Thus, the best way for foreign promoters to have larger share in profits is to increase their stake in the Indian subsidiary," said AK Prabhakar, senior vice president, equity research, Anand Rathi Financial Services.

"It's a win-win situation for both foreign promoters and local shareholders, as both can participate in the growth of the company and get rewarded by higher dividends," Prabhakar added. NSE's CNX MNC Index rallied more than 300 points, or 6%, on Tuesday, enthused by the performance of the HUL stock. Other MNCs such as Colgate Palmolive, Nestle, Procter & Gamble, GSK Consumer also rallied over 5%, on hopes of similar offers from parents.

Companies with foreign listed affiliates in high growth markets, while often somewhat difficult to identify, reflect the early aspirations of corporations to develop a global footprint for their products. As capitalist economic policies are implemented in the world's population centres, growth is leading to more people being lifted out of poverty and into the disposable income brackets where demand for consumer goods takes off. As early movers in globalisation a considerable number of Autonomies are well positioned to benefit from demand growth. They continue to represent some of the lowest risk and highest potential reward candidates in the equity markets, subject to timing.

From the perspective of a global investor India is one of the more interesting jurisdictions to invest in affiliates. There are a considerable number of such companies listed in India and domestic laws which make outright takeovers more difficult. For example, British American Tobacco owns 30% of ICT Ltd which is the largest weighting in the Nifty Index. Cigarettes represented 63% of revenue in 2012 while snack foods were the next largest segment at 16% and one of its fastest growing. The pace of the share's advance has picked up of late. If the trend is to remain consistent it will soon begin to revert toward the mean. An upward acceleration from here would represent a trend ending characteristic as taught at The Chart Seminar.

Hindustan Lever had become overextended relative to the 200-day MA when it began to pullback in October. It found support from early April and surged this week to retest the high on speculation that its parent may attempt an outright takeover.