Aditya Birla Nuvo (ABN) led by Kumar Mangalam Birla has acquired a near-majority stake in Kishore Biyani-led Pantaloons Retail’s fashion apparel business in a Rs 800-crore deal that smells like an acquisition but is described as a partnership to take on others.
On completion of the deal, the apparel business will be spun into a separately listed company, called Pantaloons Format after demerger from Future group’s Pantaloons Retail, the parent company of Big Bazaar, which competes with Aditya Birla Retail’s More chain, besides HomeTown, Central and ‘ezone’.
ABN, through its subsidiary Madura Garments — the company behind fashion labels such as Peter England and Allen Solly — will pick up 45% stake in the new entity through a debenture issue that will later be converetd into equity upon listing, said Sushil Agarwal, CFO, ABN. The AB Birla company will also make an open offer of 26% to increase its stake to a minimum of 50.01% and maximum 71% after listing. Of the remaining stake, 45% will be held by Biyani and his family while the other 55% will be held by the public and financial institutions.
Pantaloons' fashion goods have been mostly positioned in the relatively cheaper price points than the Madura ones. Its reach is across 35 cities with 65 stores and 21 factory outlets
“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,” said Kumar Mangalam Birla, chairman, ABN.
The deal will help Pantaloons trim its debt estimated at the end of last December at Rs 2,800 crore. The deal is structured in a way that allows Pantaloons Format to wipe out the entire debt of Rs 800 crore it takes on from Pantaloons Retail with the Rs 800 crore infusion it gets from ABN, said Agarwal.
“This should be be seen as a coming together of the Birla and the Biyani group to take on future competition," said a senior Future group executive. “The two businesses share synergies. We are definitely not looking at exiting the apparel business in the long-term but this deal will definitely help bring more funds to our group business,” he added.
“For ABNL it's a win-win situation as Pantaloon is a strong brand,” said Purnendu Kumar, senior vice-president at industry consulting firm Technopak.