Maiti, Yassir A Pitalwalla, Financial Chronicle
April 30, 2012
Mangalam Birla has done what Mukesh Ambani could not. Birla has
sewn up a deal to acquire a 50.01 per cent in Pantaloons, the
retail format of Pantaloon Retail India (PRIL). For this, Pantaloons
will be demerged from PRIL.
It is a two-stage deal involving a Rs 800 crore cash payment,
assumption of a similar amount of debt and an open offer for a
minimum 26 per cent to shareholders of the demerged Pantaloons
The Future group on Monday said it intended to demerge the Pantaloon
retail format from the listed PRIL. The demerged entity will be
automatically listed in the National Stock Exchange (NSE) and
the Bombay Stock Exchange (BSE), said a press release issued by
the Birla group.
Officials associated with the deal told Financial Chronicle that
the Pantaloons format was being valued at over Rs 2,600 crore.
PRILs market capitalisation was Rs 3,895 crore at the end
It is a good deal for the shareholders. Since a sizeable
business is going out of the group, there could be a dent on future
numbers, said Sangeeta Tripathi, senior equity research
analyst at Sharekhan.
But Kishore Biyani of PRIL will still retain a stake in the fashion
retail business through formats such as Central, Big Bazaar and
Brand Factory, among others.
Devangshu Dutta, CEO of Third Eyesight, a specialist retail
consultancy firm, said, Certainly, by hiving off part of
the company, the Future group will pay off debt and ease the load
on it to an extent.
The demerged unit is expected to have sales of Rs 1,700 crore
in the year to June 30 this year. It is also expected to expand
its network by around 20 stores a year.
In contrast, the Aditya Birla Nuvo (ABN) subsidiary Madura Fashion
& Lifestyle recorded revenue of Rs 2,145 crore in calendar
2011. A Future group press release said that Nimesh Kampanis
JM Financial acted as the sole financial adviser to the transaction.
This is a very interesting combination and shows consolidation
is happening in the industry. The cash infusion will help PRIL
focus on the food business and make its balance sheet healthy,
said Nikhil Chaturvedi, managing director of Provogue (India).
The retail business is very time consuming and needs deep
pockets. The deal shows that Biyani must have taken a decision
to become debt free. The Birlas will have better controls and
will be able to extract better margins from this business,
said Dilip B Jiwrajka, MD of Alok Industries which controls the
H&A chain of apparel stores.
The deal brings together the first generation Biyani family thats
behind Indias largest organised retailer and the Birla family,
which runs the $35 billion Aditya Birla group. It is a win-win
transaction for Birla who gets the most profitable fashion retailing
business of PRIL. As for PRIL, which had a debt of Rs 4,200 crore,
it gets to reduce its net debt load by Rs 1,600 crore to Rs 2,600
This deal is positive for the industry as Madura has experience
in fashion retailing. This will be a good extension for the Birlas,
as they are putting in money in an established store chain. The
Birlas will also be able to push their own brands through these
stores, said Asim Dalal, managing director of The Bombay
PRIL has always been vocal about debt-restructuring. This
is a good step towards re-aligning the organisation, said
Saloni Nangia, senior VP of Technopak Advisors.
ABN will pay PRIL Rs 800 crore in lieu of debentures, which will
get converted, into equity of the demerged entity. PRIL, in turn,
will transfer the net assets of the Pantaloons format business
via a court scheme of arrangement with debt of Rs 800 crore and
Rs 800 crore convertible debentures.
ABN will make an open offer for a minimum 26 per cent of shares
in the de-merged entity so as to ultimately hold a minimum 50.01
per cent of the spun-off unit post conversion of the debentures.
Biyani, who founded the Future group and is its CEO, said in
a statement, We are honoured to be associated with Indias
pre-eminent and among the most respected business houses. We always
had a great admiration and respect for the businesses developed
by Madura Garments. This marks a unique coming together of brands
and enterprise that will create significant value for customers,
suppliers and all stakeholders.
There are massive synergy benefits between Pantaloons and
Birlas Madura Fashion & Lifestyle. The combined business
will cater to the entire value chain of consumers from the value
conscious middle class to top end customers, said a senior
official involved in the deal who requested anonymity as both
Pantaloons and Aditya Birla Nuvo are in a silent period ahead
of their results announcements for the quarter ended March.
Biyani started his retail sojourn in Kolkata with the first Pantaloons
store in 1997 and the format has been very close to his heart.
It operates a chain of 65 stores in 35 cities and another 21 Pantaloons
factory outlets, making it one of the biggest fashionb retailers
India. It has a combined retail space of over 2 million sq ft.
Maduras brands Louis Philippe, Van Heusen, Allen Solly,
Peter England, People and The Collective together have retail
space of 1.6 million sq ft in the country. The de-merged
entity will hold the rights to the Pantaloons format for eternity
and the valuation takes into account the brand valuation too,
said the man privy to the details of the deal.
A fashion council comprising Rakesh Biyani, CEO of the
retail business of the Future group, Kailash Bhatia, head of the
fashion business of the group, and Pranab Barua, CEO of apparel
and retail of the Aditya Birla group will form the council that
will aid and advise the management of the de-merged entity,
Rakesh Biyani and Bhatia will continue to manage the business.
Madura Fashion & Lifestyle brands Louis Philippe, Van
Heusen, Allen Solly, Peter England and People -- will join the
reach, distribution and customer loyalty enjoyed by Pantaloons
across the country, said a Future group press release.
Kumar Mangalam Birla, chairman of the Aditya Birla group, said
in a statement, 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
the BSE listed Aditya Birla Nuvo to the pole position in the branded
fashion space in all the segments with a pan India presence.
On completion of the acquisition, the two entities, ABNs
Madura Fashion & Lifestyle and PRIL, will work closely as
partners to derive operational synergies, in terms of back end,
supply chain and many other important value drivers of the business.
We are delighted to have Kishore Biyani as our partner in the
Pantaloons format business. Furthermore, to ensure continuity
the current management team will continue to run the business,
PRIL said its board of directors would meet on May 3 to consider
an issue of equity shares or instruments convertible into equity
shares to investors on a preferential basis, subject to approval
by an extraordinary general body meeting.