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Paras deal in mind, PE firms put de-listing offer before Jyothy Labs

Reghu Balakrishnan & Viveat Susan Pinto  |  Mumbai 

British consumer goods company Reckitt Benckiser’s buyout of Paras Pharmaceuticals, a privately-held Indian firm, remains one of the best examples of the returns private equity (PE) investors can earn when exiting a firm in India.

The lucrative return Actis Capital earned from exiting Paras last year has prompted other PE players with focus on India to look for a similar exit.

Actis, which invested $150 million in Paras Pharma for a 63 per cent stake, sold it for about $726 million to Reckitt.

Current talks between Mumbai-based Jyothy Laboratories and PE players appear to be moving in that direction. This even before the PE firms have made any investment in the company.

Some of the PE investors in the race to acquire stake in Jyothy, including Actis, Apax Partners and Bain Capital, have mooted a proposal before the company’s management to delist the company from the stock exchange in a few years from now, people directly involved with the negotiations told Business Standard.

Jyothy has been talking to a clutch of PE players like Actis, Apax Partners, Bain Capital, Carlyle, Temasek and GIC to raise funds to retire the Rs 600-crore debt it had taken while buying a 50.97 per cent stake in Henkel India last month.

The rationale being that if privately held, Jyothy has a better chance of being acquired by a multinational. The thinking follows Jyothy’s plans to reinvite Germany’s Henkel AG to take up to a 26 per cent stake in the company after five years.

Jyothy has not responded to the proposal yet, people in the know say. When contacted, the firm declined to comment on the issue. “As a policy, we neither confirm nor deny speculation on deal-related issues,” Bain Capital Managing Director Amit Chandra said.

An Actis spokesperson also said the firm did not comment on market speculation, while Sandeep Naik, co-head, Apax Partners India, declined to comment.

These PE players are eyeing a 10-12 per cent stake in Jyothy. Actis, Apax and Bain say once that is through, they will press for a voluntary open offer to acquire the remaining public shareholding in the firm, pushing subsequently for a delisting, informed sources say.

The promoters of Jyothy hold 63.16 per cent in the company. By Thursday, Jyothy had a market cap of Rs 1,628 crore according to Bombay Stock Exchange data.

“Multinationals are keen to buy out privately-held than the listed ones. Once Jyothy is privately-held, the scope of being acquired by an MNC is high. While Henkel AG has the option of buying up to 26 per cent in Jyothy, it may not be interested in a minority stake. By investing in Jyothy now, PE firms are eyeing a similar exit such as in Paras,” said a PE investor who is in race.

A Mumbai-based FMCG analyst said, “Paras was a controlled deal where Actis held over 60 per cent stake. The PE investment in Jyothy will be a growth capital transaction, where the investor will get a board seat and nothing more. While attempting to acquire additional stake through a voluntary open offer and then pressing for a delisting of Jyothy to pave the way for Henkel to acquire a majority stake later is possible, it is too long-drawn an affair to me. It is not easy delisting a company in India, even less in FMCG.”

Anand Mour, senior FMCG analyst, Indiabulls says, “The Paras deal was totally different from the Henkel one. Here Jyothy will have to show how it will turn around Henkel to invite PE interest. It is a case of one plus one is equal to 11, not two.”

Of Jyothy’s Rs 1,300-crore combined turnover, Rs 500 crore comes from fabric care, followed by Rs 300 crore from household insecticides, Rs 250 crore from surface cleaners, Rs 150 crore from personal care and Rs 20 crore from oral care.

First Published: Fri, June 10 2011. 00:17 IST