In a major restructuring of its retail business, the Aditya Birla Group has merged Madura Fashion & Lifestyle with Pantaloon.
According to the Group Chairman, Kumar Mangalam Birla, this will create the country's largest branded apparel company by sales and number of stores.
Following the development, Pantaloon soon will be renamed to Aditya Birla Fashion & Retail which will have a combined turnover of around Rs 5,290 crore with an operating profit or EBIDTA of Rs 493 crore.
Ended March 2014, Madura Fashion had sales of Rs 3,226 crore with its in-house brands namely Van Heusen, Louis Philippe and Allen Solly and for the same, fiscal Pantaloon reported a revenue of Rs 1,661 crore- net loss of Rs 187 crore.
"It's a very compelling logic and we believe this is good for Nuvo shareholders. Once a business reaches size and scale, it is carved out as happened with Idea, Carbon Black and now Madura Garments," said Kumar Mangalam Birla.
Henceforth, ABNL shareholders will get 26 shares of Pantaloon for every five shares held. Madura Fashion shareholders will get seven shares of Pantaloon for every 500 held. In addition, preference shareholders of Madura will get one share of Pantaloon. Simply put, an existing investor with 100 equity shares in ABNL will continue to hold those and will also get 520 of Pantaloon.
Standard Chartered Bank was the transaction advisor, while JM Financial Institutional Securities provided the fairness opinion for Pantaloon and Axis Capital to ABNL. Price Waterhouse & Co and Bansi S Mehta & Co were the independent valuers.
"For Birla, it will now be a core retail play, which will have its own benefits in synergies over a period of time."But the company will still face inherent issues such as online threat, increasing cost and slow consumer demand", said Abneesh Roy, Associate Director, Edelweiss Securities.
Since last fiscal Pantaloon's stock has fallen roughly 15% and currently trading at Rs 113.90 apiece, valuing the department store chain at Rs1,157 crore.
"The size along with the expansion and synergies would make this an extremely attractive investment opportunity for domestic and foreign investors,'' said Vishal Kampani, MD and CEO, Institutional Securities Group, JM Financial.
The merged entity will have a relatively bigger retail footprint of 5 million square feet spread across 1,900 stores. Hence, it is expected to help build synergy and strengthen regional market share.
"There will be synergy opportunities in the real estate side and areas in sourcing. As we move forward, we have to see how it evolves and we can't put an amount in savings, but largely the synergy will be in both front end and the back end," said Ashish Dikshit, CEO, Madura Fashion.
The deal, which will take six to nine months to complete, also excluded Jayshree Textiles, another division within Madura that is strong in linen manufacturing and clocks over Rs1,300 crore in sales annually.
"The positioning of Madura and Pantaloon are different and there could be integration issues even if they belong to the same group. At the same time, management bandwidth will be strengthened", said Ruchi Sally, Director, Elargir, a retail consultant.