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GLOBAL buyout firm TPG is taking control of the South-based Shriram Group’s consumer retail finance business, one of the few lenders with a national presence. The group is now selling off majority stake (55%) in its financial services holding firm, Shriram Retail Holdings (SRH) for Rs 805 crore, to the buyout firm instead of the earlier proposal of selling only 49% stake for Rs 530 crore.

The transaction includes the amount that the private equity major will have to shell out for an open offer for the publiclisted consumer finance subsidiary of SRH called Shriram City Union Finance (SCUF) . A source said that in the new scheme of things, TPG will own majority stake of 55%, which would also include warrants converted into equity.

SCUF, the consumer finance subsidiary of SRH, is a listed company. Established in 1986, SCUF is a deposit-accepting non-banking financial company specializing in small-sized retail finance. With over 633 outlets across the country, it has presence in consumer durables and automobiles financing besides personal loans and small business loans.

As per takeover norms, any change in the ownership of a listed company triggers a compulsory open offer where the acquirer has to make an offer to buy atleast an additional 20% stake from the shareholders of the target company.

SRH, directly and indirectly, holds 51% stake in SCUF. The deal with TPG triggers the open offer clause where SRH will have to make an open offer to the shareholders of SCUF. At its last closing price at BSE, SCUF was valued at Rs 1,458 crore and a 20% stake would value the company at Rs 291 crore.

As per the deal, TPG will acquire 1.83 million equity shares at a price of Rs 2,388.8 per share along with 1.53 million warrants convertible into equity at the same price. This will mean an infusion of Rs 438 crore for buying the equity shares and Rs 365 crore for picking up the warrants. This transaction values SRH at Rs 1,465 crore which is marginally higher than the market capitalisation of SCUF. The entire revenue and profit of SRH is derived out of SCUF. During FY'08 both SCUF and SRH showed a net profit of Rs 87.63 crore on net sales of Rs 605.98 crore. The firm had reserves of Rs 377.6 crore till March'08. Shriram Group had been looking to sell minority stake in various businesses. Early this year, it had struck a deal for Shriram Credit where Goldman Sachs was to pick up 20% in the broking and lending firm for Rs 300 crore. However, this deal did not materialize, reportedly due to differences over valuations.

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