The country’s largest retail firm Pantaloon Retail (India) Ltd is spinning out its apparel retail business as a separate listed firm and sell a majority stake in the venture to Aditya Birla Nuvo, one of the largest branded fashion apparel players in the country. The AV Birla Group firm will invest at least Rs 800 crore ($152 million) in a two tiered transaction.
In the first leg of the deal, Pantaloon Retail will issue convertible debentures worth Rs 800 crore to Aditya Birla Nuvo. It will them demerge the Pantaloons apparel retail format (or Pantaloons Format business) into a separate listed firm and Aditya Birla Nuvo’s debentures would convert into equity of the demerged entity.
Pantaloons Format business has 65 stores and 21 factory outlets across 35 cities covering total retail space of over 2 million sqft. The spun off entity will also house debt worth Rs 800 crore.
Aditya Birla Nuvo will also make an open offer of a minimum 26 per cent to the shareholders of the resulting entity. Post this, it will hold at least 50.01 per cent stake in the demerged entity.
JM Financial was the sole advisor to the transaction, according to a company statement.
The deal would lead to transfer of a part of the existing retail business of Pantaloon Retail. It will, however, continue to control and run its other retail operations housed under Big Bazaar, Food Bazaar, Brand Factory, Central, Home Town among others.
Shareholders of Pantaloon Retail will get shares of the new demerged entity, although details of the proportion in which the shares will be issued is yet to be finalised.
Pantaloon Retail scrip shot up 9.25 per cent to close at Rs 187.75 a share on the BSE in a strong Mumbai market on Monday. The stock price has rocketed over 50 per cent in the last two months alone.
The deal will help the retail company to reduce the debt burden. As on date, the standalone debt on the books of Pantaloon Retail is pegged at Rs 2,173.1 crore and consolidated debt at Rs 7,846.1 crore.
Commenting on the development, Aditya Birla Nuvo chairman, Kumar Mangalam Birla said: “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.”
For calendar year 2011, Aditya Birla Nuvo’s retail business Madura Fashion & Lifestyle which owns textile brands like Louis Philippe, Van Heusen, Allen Solly, Peter England, People and The Collective, posted revenues of Rs 2,145 crore.