Private equity fund to invest $100 million for a 10-12% stake in Jyothy Laboratories
According to three independent sources aware of the ongoing development, though Jyothy has had negotiations with a bunch of marquee PE investors like Carlyle, TPG and Blackstone, Apax is set to make the cut.
With its negotiations with Germany’s Henkel AG now just short of the official signing of the deal, Jyothy has also organised a credit line from ICICI Bank to tie up financing for the proposed deal. Sources said the deal was expected to get signed in India in two weeks, now that it had been ratified by the German board. Subsequently, the PE placement is expected to take place in a few months.
Jyothy Labs spokesperson declined to comment. Text messages to the company’s Managing Director, Ulhas Kamath, yielded no response. Henkel India also did not respond to emails.
Shashank Singh, partner at Apax and also the fund’s co-head in India, told Business Standard that: “As a policy, we can’t comment on market speculation.”
Though debt-free Jyothy is well capitalised and already has acquisition debt available from its creditors, consumer-oriented Apax is expected to add “strategic value” to the Mumbai-based company.
Apax’s entry will also give a potential exit route to Jyothy’s existing institutional investors, who came in through a qualified institutional placement (QIP) last year. With Apax on board, there will be a likely 10-12 per cent equity dilution in Jyothy Labs.
Henkel has been in the process of divesting its debt-ridden Indian portfolio of detergents and personal care, along with the manufacturing facility at Karaikal in Tamil Nadu. It had even appointed HSBC in January to find potential suitors for Henkel India's locally-acquired brands like Margo soap, Neem Active toothpaste and Chek detergent, through a formal sell-off process. Also on the offer was a long-term licensing of international brands Henko, Pril and Fa, as the $17-billion German conglomerate was getting ready to exit the laundry and personal care segments in India.
But with Jyothy picking up a 14.9 per cent stake in the company in March from Henkel's Indian co-promoter in the venture, A C Muthiah, the sell-off exercise became a non-event.
Muthiah sold almost his entire stake of 16.7 per cent for Rs 60.7 crore. The shares were held by his promoter group company Tamilnadu Petroproducts, and were sold at Rs 35 a share, making Jyothy the largest Indian shareholder in the company.
Henkel AG holds a 50.97 per cent stake in its Indian unit, listed on local bourses. Public and institutions hold 32.33 per cent, while Muthiah held a 16.7 per cent block in the company.
Jyothy’s management has already gone on record to say that they will fund the transaction through internal accruals and debt. Last year, Jyothy raised Rs 228 crore through a QIP, and a portion of that money is available. The final payout for the deal will depend on the exact quantum of shares purchased and at what price. Sources said depending on the final valuation of Henkel’s 51 per cent stake, the total payout, including the open offer for an additional 20 per cent stake, is likely to be around Rs 350 crore. Jyothy is likely to pay Rs 15-20 per share to buy out Henkel India from its German parent.
For the buyout of the residual 86 per cent, Jyothy would need to raise money. It had Rs 270 crore in banks, of which Rs 60 crore was used for buying the 14.9 per cent stake from Muthiah. The balance sheet is not leveraged at all: It’s a debt-free company. And that gives them enough flexibility to complete the transaction on their balance sheet.
Despite this, Jyothy has roped in ICICI Bank for an assured credit line. Moreover, Henkel India’s existing debt of Rs 520 crore, with guarantees from its German parent, will also get transferred. So, ICICI and a clutch of Indian banks are expected to “takeout” the existing creditors like HSBC and Deutsche Bank.
Why would Jyothy need a PE sponsor to partner in the deal? Jyothy has existing QIP investors who came in at a much higher price of Rs 282 per share. So, after the Henkel buyout, analysts expect many would like to exit at a profit. That is where Apax can come in, via a combination of preferential allotment and secondary sale of shares.
Jyothy Labs shares today closed at Rs 216.75 on the Bombay Stock Exchange. “The PE placement will happen at Jyothy, not Henkel India. But it will happen later, once the deal is all stitched up. In my view, Apax will come on board in the next four-six months, after the Henkel open offer,” said a person in the know.