The group's flagship firm, Pantaloon Retail India Ltd (PRIL) currently operates the 'Pantaloon' chain of fashion apparel and accessories stores.
As a part of the deal between the two companies, the Pantaloon format will be demerged from PRIL, a listed entity on the BSE and National Stock Exchange.
"The demerged entity, subject to necessary and statutory approvals, will invite an investment from Aditya Birla Nuvo Ltd (ABNL)," PRIL said in a statement.
ABNL will subscribe to debentures amounting to Rs 800 crore issued by PRIL and on completion of the demerger process, the debentures will convert into equity in the demerged entity of the Pantaloon format.
Besides, ABNL will also take care of Rs 800 crore debt of Pantaloon, the statement said.
"The existing shareholders of PRIL, including its promoters will continue to own shares in the demerged entity. Post demerger, the total debt of Pantaloon Retail will reduce by Rs 1,600 crore," the statement said.
In a separate statement, ABNL said it will make an open offer of a minimum 26 per cent to the shareholders of the resulting entity.
"After the listing of the resulting entity and on conversion of debentures into equity, ABNL's holding in the resulting entity post open offer shall be a minimum of 50.01 per cent. The resulting entity will become a subsidiary of ABNL," it added.
Commenting on the development, ABNL Chairman, Kumar Mangalam Birla said: "The proposed acquisition is in line with our strategic intent to be on the top of the league and to create the largest integrated branded fashion player in the country through an extension into the value segment."
The proposed transaction is likely to be completed within eight to 10 months, subject to the finalisation of the Scheme of Arrangement, due diligence and statutory and other requisite approvals, the statement added.
Launched in 1997, the Pantaloon format is spread in 35 cities with 65 stores and 21 factory outlets covering total retail space of over 2 million square feet.
Future Group operates a number of retail chains including Pantaloons, Central, Big Bazaar, Food Bazaar, Home Town and eZone and also has allied businesses in consumer finance, life and non-life insurance, logistics infrastructure and supply chain and brand development.
The Future group is currently negotiating numerous divestment and fund-raising transactions for both retail and non-retail businesses to pare debt of over Rs 7,000 crore, out of which Rs 4,800 crore is in core retail business.
Commenting on the deal with ABNL, Future Group CEO Kishore Biyani said: "This marks a unique coming together of brands and enterprise that will create significant value for customers, suppliers and all stakeholders."
In case of Pantaloon format, Rakesh Biyani and Kailash Bhatia will continue to manage the business.
"A fashion council, bringing in the leadership teams of Madura Garments (a part of ABNL) and Future Group will aid and advise the management with the objective to fully leverage the strengths of Madura Garments and Pantaloons," it said.
Madura's portfolio includes brands like Louis Philippe, Van Heusen, Allen Solly and Peter England.
"These brands will join the reach, distribution and customer loyalty enjoyed by Pantaloons format across the country," the statement said.
Commenting on the performance of Pantaloon format, PRIL said: "The business is expected to post a turnover of around Rs 1,700 crore by the end of the financial year in June 2012.
In the medium term, the format is expected to add 20 stores annually and reach out to a larger customer base in leading cities across the country, it said.
The boards of both ABNL and PRIL have approved the proposed transaction and it is subject to the finalisation of the scheme of arrangement, due diligence and statutory and other approvals.
JM Financial acted as the sole financial advisor to the transaction, it said.
(Source- http://economictimes.indiatimes.com)
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