Bombay Rayon Fashions Limited, a company backed by Anders Povlsen (the man behind Danish clothing retailer Best Seller), is acquiring 70.56% stake in Indore-based textile company STI India Limited (STI), for Rs 70 crore. STI is a public listed firm and the transaction will trigger a mandatory open offer to acquire another 20% stake.
Bombay Rayon said, its board has approved the acquisition of equity shares and optionally convertible debentures (OCDs) alongwith underlying securities from the existing investors and OCD holders, on Wednesday. STI scrip rose 4.8% to hit the upper limit for the day valuing the firm at Rs 81 crore. The scrip has almost doubled within the last one month.
STI is a small size textile firm that has been in losses for the last few years but clocked marginal profit over the last two quarters ended March’10 and June’10. It is yet to announce its latest results.
This comes as one of rare moves of consolidation in the domestic textile industry that is highly fragmented in nature and had been hit hard by dwindling exports as global demand (specially US) had crumbled after the global economic slowdown.
Povlsen who owns Denmark’s Bestseller A/S– which is one of the world’s leading retail clothing companies operating more than 1,800 shops and 3,200 franchisee stores– had picked a large minority stake in fabric and apparel maker Bombay Rayon for Rs 333 crore ($65 million) in March last year. This fund infusion was to augment working capital requirements, finance acquisition as well as new projects besides other corporate purposes.
However, this deal could yet make it tricky if and when BRFL wants to get into retail business as there are restrictions on foreign investment in domestic retail trading.
BRFL already operates retail business abroad. In April 2008, it had acquired the brand ‘Guru’ and other retail business of Jam Session Holding S.r.l (Jam) through its wholly–owned Italian subsidiary of another firm Bombay Rayon Retail Limited (in turn a subsidiary of BRFL). Guru has around 15 retail outlets and 9 franchises spread across Europe (mainly Spain, Italy, Netherlands) besides Dubai.
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