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Reliance Infrastructure to acquire Pipavav Defence

Post the transaction, the existing promoters of Pipavav Defence will continue to retain a minority stake in the company, together with two non-executive board seats. (Post the transaction, the existing promoters of Pipavav Defence will continue to retain a minority stake in the company, together with two non-executive board seats.)Premium
Post the transaction, the existing promoters of Pipavav Defence will continue to retain a minority stake in the company, together with two non-executive board seats.
(Post the transaction, the existing promoters of Pipavav Defence will continue to retain a minority stake in the company, together with two non-executive board seats.)

Anil Ambani firm will acquire 18% stake, open offer to follow

Mumbai: Reliance Infrastructure Ltd, a part of billionaire Anil Ambani’s Reliance Group, will spend 819 crore for an 18% stake in Pipavav Defence and Offshore Engineering Co. Ltd, gaining management control.

Reliance Infrastructure, through its subsidiary Reliance Defence Systems Pvt. Ltd, will acquire 130 million equity shares from the promoters of Pipavav Defence at a price of 63 per share, the company said. That’s a 17.6% discount to Pipavav’s closing share price of 76.5 on the BSE on Wednesday.

After the acquisition, Reliance Defence Systems will make an open offer to acquire an additional 26% stake in the company from public shareholders at 66 per share, a company statement said. JM Financial Institutional Securities Ltd will be the sole financial advisor and the manager to the open offer.

As per the deal, Reliance Infrastructure will also acquire from Pipavav Defence promoters additional shares in the company, at 63 per share, to take its shareholding to not less than 25.1% after taking into account the stock bought in the open offer.

Following the transaction, promoters of Pipavav Defence will retain a minority stake in the company, together with two non-executive board seats.

The purchase comes at a time when companies looking to expand their defence divisions or seeking entry into defence manufacturing are looking to buy firms that have already put the infrastructure in place.

Their interest has been stoked by the National Democratic Alliance’s ‘Make in India’ campaign and Prime Minister Narendra Modi and defence minister Manohar Parrikar’s statements about the manufacture of defence equipment being at the core of this initiative.

Last month, Modi said at the Aero India show in Bengaluru that the country imports nearly 60% of its defence equipment, spending tens of billions of dollars. Even a 20-25% reduction in imports could create an additional 100,000-120,000 highly skilled jobs in India, he said.

“This is a unique opportunity for Reliance Group to participate in Prime Minister Mr. Narendra Modi’s “Make in India" programme for the high growth defence sector," Ambani said in a statement about the acquisition. “We are confident that our strategic investment will create long term value for all stakeholders," Ambani said.

On 25 February, Mint reported that Pipavav may announce a deal as early as the end of February. The Munjals of the Hero Group and the Mahindra Group, which has interests in the defence equipment business, were in the race to pick up a stake in Pipavav, said the report, citing two people familiar with the development.

ABG Shipyard Ltd’s chief financial officer and executive director Dhananjay Datar has said the company was open to selling a stake to a strategic investor and that the move is being led by its creditors.

It would take an entrepreneur two to three years to build a defence company with necessary approvals to deal with original equipment manufacturers (OEMs) of the world, said Harish H.V., partner at Grant Thornton India Llp, an advisory firm.

“The acquisition of an existing defence company with all approvals will provide a readymade infrastructure to expedite the business expansions. Also, OEMs prefer to do business with necessary approvals to deliver defence systems," Harish said.

Pipavav Defence has India’s largest, and one of the world’s largest, dry docks, measuring 662m in length and 65m in width. A second dry dock measuring 750m in length and 60m in width is under development.

Pipavav Defence has the capabilities to produce a wide range of naval vessels for defence, offshore assets, hydrocarbon vessels and commercial applications.

Reliance Infrastructure has formed three wholly owned subsidiaries—Reliance Defence Systems Pvt. Ltd, Reliance Defence Technologies Pvt. Ltd and Reliance Defence and Aerospace Pvt. Ltd—to pursue growth opportunities in the defence sector.

Ambani has said the Reliance Group companies plan to start by manufacturing naval utility and army utility helicopters.

Nikhil Gandhi, founder-promoter and chairman of Pipavav Defence, said the company was looking to support Reliance Group in realizing the goal of creating India’s foremost defence company, with an emphasis on the ‘Make in India’ programme.

Following the acquisition, Ambani will become the chairman of the company, which will be renamed Reliance Defence Ltd.

Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.

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