Mumbai: Aditya Birla Nuvo Ltd (ABNL), a unit of the $28 billion (Rs.1.5 trillion) Aditya Birla Group, will acquire a majority stake in the Pantaloons retail chain of debt-laden Pantaloon Retail (India) Ltd (PRIL), India’s largest listed retail company by revenue.
The proposed transaction, which will help the Future Group’s PRIL pare debt, is likely to be completed within 8-10 months, subject to the scheme of arrangement being finalized, due diligence, and statutory and other approvals, ABNL said in a statement.
Future Group founder Kishore Biyani has been looking to reduce debt that’s been accumulated by rapid expansion as PRIL has sought to build scale rapidly. Meanwhile, the intense political opposition to foreign direct investment in multi-brand retail has meant that any plans of selling stakes to overseas retail companies had to be shelved.
The new, separated unit will eventually become a subsidiary of ABNL, the other units of which include Madura Fashion and Lifestyle, and Jaya Shree Textiles.
The separation will help PRIL, which had debt of Rs 5,800 crore as of December 2011, reduce this amount by Rs 1,600 crore, according to a PRIL statement.
“This deal is being done to reduce debt as non-core business transactions like Future Capital are taking some time to finalize,” said Abhishek Ranganathan of MF Global Sify Securities India Pvt. Ltd.
Majority stake: Aditya Birla Nuvo will infuse Rs 1,600 crore in Future Group’s Pantaloons department retail chain business. Ramesh Pathania/Mint
On Monday, ABNL, which owns apparel brands such as Louis Philippe and Allen Solly, said it will infuse Rs 1,600 crore in the Pantaloons department retail chain business by issuing debentures worth Rs 800 crore at mutually agreed terms and taking on debt of Rs 800 crore.
An investment banker, who did not want to named, said it wouldn’t be possible to compute the value of the deal till the “mutually agreeable” terms are made public.
After the separation, the debentures will be converted into equity shares of the resulting entity, ABNL said in the release. PRIL will hive off the Pantaloons chain.
ABNL will make an open offer for a minimum 26% to the shareholders of the resulting unit. After its listing and on conversion of the debentures into equity, ABNL’s holding will be a minimum 50.01%. The resulting unit will become a subsidiary, ABNL said in the statement.
Rakesh Biyani, managing director at PRIL, and Kailash Bhatia, an executive director at the firm, will continue to manage the Pantaloons chain. A Fashion Council will be set up, comprising the leadership teams of Aditya Birla Group’s Madura Garments and Future Group, to aid and advise the management with the objective of fully leveraging the strengths of Madura Garments and Pantaloons.
JM Financial Ltd acted as the sole financial adviser to the transaction, PRIL said in the statement.
Future Group, which has retail businesses under PRIL in food, fashion, home and consumer electronics, besides other segments such as financial services, has been looking to reduce debt. “This announcement is just the first in a series of announcements that will happen over the next couple of months by June which will see the debt reduce,” a company spokesperson said.
Pantaloons is present in 35 cities with 65 stores and 21 factory outlets covering a total retail space of more than 2 million sq. ft. It is expected to post sales of around Rs 1,700 crore by the end of the fiscal year in June 2012, PRIL said in the release. Shoppers Stop Ltd, which runs the Shoppers Stop department store chain, crossed revenue of Rs 2,000 crore in fiscal 2012 with a footprint of 50 outlets.
The origin of PRIL can be traced back to 1987, when Kishore Biyani founded Manz Wear Pvt. Ltd to manufacture trousers bearing the brand name Pantaloon. It went public in 1991 and changed its name to Pantaloon Fashions in the same year, and to Pantaloon Retail in 1999.
Over the last one year, the market capitalization of PRIL has eroded by Rs 1,598.72 crore, from Rs 5,793.06 crore to Rs 4,194.34 crore.
PRIL shares jumped 9.25% to close at Rs 187.75 each, while ABNL shares rose 0.26% to end at Rs 933 apiece on BSE. The benchmark Sensex gained 0.76% to close at 17,318.81 points. In the last one year, PRIL has lost 31.69% and ABNL has gained 6.99%.
Earlier this year, the Aditya Birla Group undertook a management recast at food and groceries business Aditya Birla Retail Ltd, as it looked to cut losses by shutting down more than 10% of its unviable supermarket stores run under the brand name More. The revamp saw Madura Fashion chief executive officer (CEO) Pranab Barua replacing Thomas Varghese as CEO of Aditya Birla Retail in early March. Varghese has taken over as head of Jaya Shree Textiles.
“This marks a unique coming together of brands and enterprise that will create significant value for customers, suppliers and all stakeholders,” said Kishore Biyani, who is also group CEO of Future Group, the parent of Pantaloons.
“The proposed acquisition is in line with our strategic intent to be on the top of the league and to create the largest integrated branded fashion player in the country through an extension into the value segment. This acquisition will catapult ABNL to the pole position in the branded fashion space in all the segments with a pan-India presence,” said Kumar Mangalam Birla, chairman of ABNL.