Billionaire Birla to Acquire Stake in Pantaloon Unit

Aditya Birla Nuvo Chairman Kumar Mangalam Birla
Aditya Birla Nuvo Ltd. Chairman Kumar Mangalam Birla. Photographer: Scott Eells/Bloomberg

Billionaire Kumar Mangalam Birla’s Aditya Birla Nuvo Ltd. will buy a controlling stake in an entity to be created by splitting store operator Pantaloon Retail India Ltd. to widen the reach of its apparel brands.

Pantaloon Retail will issue 8 billion rupees ($152 million) of debentures to Aditya Birla Nuvo that will be convertible into shares of the new entity, Mumbai-based Aditya Birla Nuvo said in a statement yesterday. Pantaloon Retail, India’s largest retailer, will turn its 65 Pantaloons branded stores and 21 Pantaloons Factory outlets into a separate unit, Swetank Jain, chief communications officer for the Future Group, said.

The acquisition will help Aditya Birla Nuvo gain operational synergies including supply chain and widen its retail offering to larger variety of stores. The deal will help Pantaloon Retail lower debt, according to Abhishek Ranganathan, an analyst at MF Global Sify Securities India Pvt., after higher interest payments hurt its second-quarter results.

“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,” Birla, chairman of Aditya Birla Nuvo, said in the statement. “This acquisition will catapult Aditya Birla Nuvo to the pole position in the branded fashion space in all the segments with a pan India presence.”

Open Offer

Pantaloon Retail, based in Mumbai, will transfer the assets of its Pantaloons format business, debt of 8 billion rupees and debentures of 8 billion rupees to the new entity, Aditya Birla Nuvo said in the statement. Aditya Birla Nuvo will make an open offer of a minimum 26 percent to the shareholders of the resulting entity, it said.

Aditya Birla Nuvo expects to hold a minimum of 50.01 percent of the new entity after the open offer and the transaction will probably be completed in eight to 10 months, the company said. The founders of Pantaloon Retail will own about 25 percent in the new company, Jain said.

Aditya Birla Nuvo had 10.3 billion rupees of cash and equivalents as of Sept. 30, according to data compiled by Bloomberg.

Shares of Aditya Birla Nuvo fell 0.4 percent to 927.20 rupees in Mumbai yesterday. Pantaloon Retail surged 9.4 percent to 187.70 rupees, the highest level since Feb. 29. The deal announcement came after the close of trading. Markets will remain closed today for a public holiday.

Aditya Birla Nuvo’s Madura Fashion & Lifestyle through its network of stores across the country sells brands including Louis Philippe, Van Heusen, Allen Solly and Peter England. It has 1.6 million square feet of retail space, the company said. Pantaloons format business is spread over 2.05 million square feet, Aditya Birla Nuvo said.

Debt Burden

After the transaction Pantaloon Retail’s debt will reduce by 16 billion rupees, according to the company.

“This should take care of the debt level significantly” at Pantaloon, MF Global’s Ranganathan said in a phone interview. “For the next six months, the interest cost and the absolute debt may not go down because the transaction has to get completed, but thereafter it would.”

Pantaloon Retail reported a net loss of 79.6 million rupees in the three months ended Dec. 31 as interest costs increased.

India on Dec. 7 suspended a decision to allow as much as 51 percent overseas ownership of multibrand retail stores after protests by opposition political parties and some allies of the ruling coalition paralyzed parliament. Prime Minister Manmohan Singh later said he would make a bid to revive the retail proposals.

Birla, who had a net worth of $8 billion according to Forbes magazine, controls companies including aluminum maker Hindalco Industries Ltd., Idea Cellular Ltd., a telecommunications service provider, and Aditya Birla Retail Ltd., which operates hypermarkets in India.

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