The country's largest listed retailer Pantaloon Retail plans to spin off its branded apparel business under the Pantaloons brand into a separate company, reports CNB-TV18’s Sajeet Manghat.
The deal is that Pantaloon’s branded retail business, which is under the name of Pantaloon itself, will be demerged into a separate company. In the deal which they have struck with Aditya Birla Nuvo, which is the company which will be coming out with the investment, Aditya Birla Nuvo will be investing Rs 800 crore via debentures in Pantaloon Retail India Limited. These debentures would be converted into equity of the demerged company, which is the branded retail business.
Post the deal, the branded retail business will be demerged and listed separately on the stock exchanges. Aditya Birla Nuvo will have an equity stake in the branded retail business as a result of which it will cross the 25% mark threshold limit and it will come out with an open offer. Eventually, the Aditya Birla Group plans to have a stake of over 50% in the branded retail business of Pantaloon Retail today. So 50% would be held by Aditya Birla Group, around 26% would be held by exiting promoter Future Group in the branded retail business and the remaining would be held by the public.
The open offer will come in only for the demerged company and not for the current company. There was some apprehension in the street that there might be a strategic investment in Pantaloon Retail as a result of which there might be an open offer for the current listed entity, but that is not going to happen. It’s going to happen at the demerged level and the open offer will go to the shareholders of the demerged entity.
An important point is that the total debt reduced from Pantaloon Retail will be to the tune of Rs 1200 crore. Rs 800 crore of investment will come in as convertible debentures in Pantaloon Retail as part of a scheme of arrangement which will happen in Pantaloon Retail. These debentures will be part of the scheme of arrangements and will be converted upon demerger. This means that AB Group will get an equity stake in the demerged entity. So, the Rs 800 crore of debt would be paid up in the main entity and in return it will get an equity stake valued at around Rs 800 crore in the demerged entity.
Over and above that, once the demerger is completed, the Pantaloon Group will hive off Rs 800 crore of debt into the demerged entity which is the branded retail business.
Furthermore, ABNL will make an open offer of a minimum 26% to the shareholders of the resulting entity. After the listing of the resulting entity and on conversion of debentures into equity, ABNL’s holding in the resulting entity post open offer shall be a minimum of 50.01%. The resulting entity will become a subsidiary of ABNL.
Pantaloon Retail has around Rs 4,000-5,000 crore in debt and it has been trying to restructure the debt for some time. Mr Biyani is on record that he was looking out for a strategic investor at some point of time, foreign investors, but since multi-brand retail didn’t take off much, those plans did not work out.
This deal is in sync with Aditya Birla Groups because it is also into branded retail. However, over the last one year, we have seen the company reassessing its retail strategy. The arms of Pantaloon would now be used by Aditya Birla Nuvo Group, especially Madhura Garments, to sell all its retail products into the market.
This basically is the consolidation that everyone had been talking about; it is finally kicking off with the big czar of retail. The Biyanis are going to lose control of the branded retail business. They will now only own only Home Town, Food Bazaar and Big Bazaar and Central. Biyani’s are in one way exiting or giving away control in the branded retail business.
From Aditya Birla Nuvo’s point of view, the manufacturer is going downstream into retail. They are going to get well established brands of retail chain and that would be easier for them to sell their products into the market rather than setting up their own retail outlets, which they were doing initially. Over the last few years, they have seen the cost escalation happening in that segment where in they started cutting down their retail outlets. So from AB Birla Group, it’s basically downstream into retail business.
It makes sense for them because they will have more control and all the channels to sell their stake. From Biyani point of view, they are going to reduce their debt and this is something which they have been trying to do for last one-two years and they were not being able to do. They have done lot of restructuring of the businesses, but even then they were not able to bring down debt, so this is one way of reducing debt off by Rs 1200 crore for the Biyani Group.
Remember that the management or the expertise of the Biyani Group still remains in this venture because Biyanis will have around 26% stake in the de-merged entity. You have Rakesh Biyani part of the core group which will be formed along with Aditya Birla. So in that sense, it’s a strategic stake which will be there. Both the managements will form a core group and they will be running this de-merged arm separately.
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