Mumbai: Kishore Biyani-led Future Retail Ltd Thursday announced the Rs655-crore acquisition of HyperCity Retail India Ltd owned by K Raheja Corp.
Future Retail owns Big Bazaar, Easyday, Nilgiris and Heritage stores and online furniture store Fabfurnish.com, while HyperCity Retail, a subsidiary of Shoppers Stop Ltd, operates HyperCity large format stores.
The stock-and-cash deal will be completed in three to five months, Future Retail said in a stock exchange filing. Future Retail will allot 9.310 million shares of Rs2 face value to HyperCity Retail’s 15 shareholders at Rs535 per share on a preferential basis. This means that of the total deal value, Rs500 crore will come from these shares. The remaining Rs155 crore will be paid in cash, Future Retail said in the exchange filing.
Shares of Future Retail Ltd closed 0.81% up at Rs527.65 on the BSE on Thursday while those of Shoppers Stop closed 2.54% higher at 507.15. The benchmark Sensex closed 0.25% lower.
The deal is subject to approval of Shoppers Stop shareholders, and the company will hold an extra-ordinary general meeting on 13 October for this purpose.
Once the deal is completed, HyperCity Retail will become a wholly owned subsidiary of Future Retail Ltd, Future Retail said.
Of the 15 shareholders of HyperCity Retail, five are individual investors, including the members of the Raheja family that own the company and its parent Shoppers Stop.
As of 31 March, HyperCity Retail had a net worth of Rs11.45 crore and annual sales of Rs1,191 crore. The company also made losses worth Rs84.73 crore and has debt worth nearly Rs400 crore on its books as of 31 March 2017, data from the company’s annual reports show.
Analysts are unsure how HyperCity, which owns 19 stores mostly in large metros, will fit into Future Retail’s existing network. Future already owns four major retail store formats, of which the largest is Big Bazaar with 235 stores spread over 10.1 million sq. ft, according to the company’s annual report for FY17.
In an interview, Future Retail chairman and managing director KIshore Biyani had said his company will focus on setting up a network of small stores under the Easyday, Nilgiris, and Heritage brands and on the group’s consumer business Future Consumer Ltd, Mint reported on 3 October.
“Although it is unclear how Future Retail will position HyperCity, they will definitely be able to run it more efficiently," said an analyst at an equities brokerage firm, requesting anonymity. “Future Retail has a much larger presence in the retail business than Shoppers Stop, so with this acquisition they should be able to get higher efficiencies of scale."
“This is the fifth acquisition for Future Retail, so it is clearly consolidating," said Abneesh Roy, senior vice president at Edelweiss Financial Services. “The only other competitors doing well are Reliance Retail and D-Mart, other players are mostly downsizing."
“How the brand architecture looks remains to be seen, but we rarely see two brands in similar businesses coexisting. The 19 stores of HyperCity are quite complementary to the current Big Bazaar store, except for one in Noida which does not have a Big Bazaar in close proximity. Also, there is significant synergistic benefits because while Big Bazaar’s sales from fashion are at 30% while for HyperCity it is at 15%. Also, Big Bazaar commands a 40% gross margin on fashion sales while HyperCity makes 30% gross margin," Roy added.