Birlas to merge Madura Garments into Pantaloons Fashion

Move to create India's largest apparel retail player, valued at Rs 12,000 cr

The Kumar Mangalam Birla-controlled group on Sunday announced a plan to merge its Aditya Birla Nuvo Ltd (ABNL)-operated fashion retailing business with Pantaloons Fashion & Retail. This will create India’s largest branded apparel player, valued at Rs 12,000 crore.

According to the plan, Madura Fashion (the branded apparel retail division) and Madura Lifestyle (the luxury branded apparel retailing arm of ABNL) will be demerged into Pantaloons Fashions, a listed subsidiary of the group.

WIN-WIN DEAL

• Aditya Birla Nuvo shareholders to get 26 new equity shares of Pantaloons for every 5 shares held
• Madura Garments shareholders get 7 new equity shares of Pantaloons for every 500 shares held
• Preference shareholder of Madura Garments gets one new equity share of Pantaloons
• Pantaloons to be renamed Aditya Birla Fashion & Retail
• Merged entity valued at Rs 12,000 crore
• Value unlocking for Aditya Birla Nuvo shareholders

After the restructuring, Pantaloons Fashion will be renamed Aditya Birla Fashion & Retail Limited, and have 1,900 stores across India. The combined entity will have a debt of Rs 1,775 crore, after loans of about Rs 475 crore will be passed from Madura to Pantaloons.

Under the merger plan, ABNL shareholders will get 26 new equity shares of Pantaloons for every five ABNL equity shares held, following the demerger of Madura Fashion. Similarly, shareholders of Madura Garments will get seven new equity shares of Pantaloons for every 500 Madura Garment equity shares held, pursuant to the demerger of Madura Lifestyle. The preference shareholder of Madura Garments Lifestyle will get one new equity share of Pantaloons. After the deal, Pantaloons’ equity base will increase from 92.8 million to 772.8 million shares.

“The idea is to unlock value for our shareholders in both ABNL and Pantaloons Fashion,” said Aditya Birla Group Chairman Kumar Mangalam Birla. He also said fashion retailing was doing far better than the country’s economy, with the combined entity’s revenue growing by 40 per cent and Ebitda by 43 per cent, in the past two years.

Standard Chartered Bank was the advisor for the transaction, and Price Waterhouse & Co LLP and Bansi S Mehta & Co were the valuers.

With this restructuring, an ABNL shareholder holding 100 shares will get 520 Pantaloons shares, in addition to the 100 ABNL ones. The promoters will own close to a 60 per cent stake in Pantaloons after the restructuring, compared with the present 72 per cent. The group decided to keep its ‘More’ branded grocery stores out of the merger scheme, and said it would not offer any stake in the new company to private equity players.

“This consolidation will create India’s largest pure-play fashion & lifestyle company, with a strong bouquet of leading fashion brands and retail formats. This move brings India’s number-one branded menswear and womenswear players together,” the chairman said. He added the company’s internal accruals were enough to fund its growth plans and the transaction would be completed in six to nine months.

“Investors of ABNL had been asking for a demerger for a long time. This entity will create the largest pure-play fashion company in the country and remove the holding company discount of ABNL,” Kumar Mangalam Birla said. The Pantaloons brand will continue at the level of stores, even as the company’s name will change. The debt-to-equity ratio of Pantaloons will improve after the scheme.

“This will also bring all branded apparel businesses under one roof, accelerate the growth of these businesses, and help exploit emerging opportunities presented by the rapidly growing Indian apparel market,” said Pranab Barua, the group’s business director (apparel & retail business).

The consolidation would also enable tapping of operational synergies on various fronts, such as sourcing, real estate and technology platforms, the group said in a statement.

Standard Chartered Bank was the advisor for the transaction while Price Waterhouse & Co. LLP and Bansi S. Mehta & Co were the valuers.