Birla-Pantaloon deal to suffer valuation drop

Citing Pantaloon Retail’s June quarter results which fell

below the estimated mark, Aditya Birla Nuvo has decided to rework its deal for a controlling stake in Pantaloons, leading to a slight valuation drop. Recently, it was reported that the deal proposal between the two was sent back by the Competition Commission of India (CCI) terming it as premature and lacking a nod from the boards of the respective companies.

In May this year, Kumar Mangalam Birla had announced plans to buy a 50.1 per cent controlling stake in Pantaloons valued at Rs 800 crores in cash while taking on a similar quantum of debt. The deal was considered a break-through for Kishore Biyani controlled Pantaloon Retail India (PRIL), which has been reeling under debt pressure for quite some time.

If the deal gets through as proposed, it would peg the estimated enterprise value of Pantaloons stores at Rs 3,200 crores, almost two times its top line revenue and 13 times EBITDA. The group had given Rs 200 crores EBITDA guidance for Pantaloons’ demerged entity when the deal was announced, but the business is said to have missed the target after PRIL posted 78.6 per cent decline in profits in April to June quarter.

As per the MoU signed when the deal was announced, Biyani’s Future Group was to spin-off the fashion apparel format from the listed Pantaloon Retail India (PRIL) into a separate company, into which Aditya Birla Nuvo would pump in the money. The transaction is expected to help Pantaloon Retail reduce its debt burden by Rs 1,600 crores.