ANALYSIS OF ACQUISITION OF

PANTALOONS BY ADITYA BIRLA (MADURA FASHION &

LIFESTYLE)
GROUP – 5 ( SECTION B )

Prateek Jain (PGP33034)

Avinash Kumar (PGP33267)
Debarati Banerjee (PGP33270)
Rohit Dudi (PGP33286)
Sushant Snehi (PGP33302)
Vijay CP (PGP33305)
Dawn C Kariankal (PGP33318)
Priyanka Rai (PGP33392)
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PORTER’S FIVE FORCES

Threat of New Entrants

5
Economies of Scale

Government Product
Approval 3 3 Differentiation
Scale of 5
Actual

Switching Cost 4Brand Identity

2
PORTER’S FIVE FORCES

Bargaining Power of Supplier

5
Number of Supplier

Contribution to the Switching Cost for

Quality 4 Supplier
1 Scale of 5
Actual

3
Availbility of Supplier's Threat to
Substitutes Forward Integration
5

3
PORTER’S FIVE FORCES

Bargaining Power of Buyers

Number of Buyers

Contribution to the Switching Cost for

Quality Buyers
1 1 Scale of 5
Actual

1 1

Availbility of Buyers' Threat to

Substitutes Forward Integration

4
PORTER’S FIVE FORCES

Threat of Substitutes
Availbility of Close
Substitutes

Profitability of the
Scale of 5
Producers of 4 1 Switching Cost
Actual
Substitutes

4
Substitute-Price
Value

5
PORTER’S FIVE FORCES

Rivalry Amongst Competitors

5
No of Competitors

Strategic Stakes 4 Industry Growth

2
Scale of 5
Actual

Excess Capacity4 Switching Cost

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CRITICAL SUCCESS FACTOR FOR READYMADE GARMENTS

Scale of Operation Global Expansion

10 09

Marketing Strategy Lean Supply Chain

08
01

Retailing Channel 07
02
Brand Strength & Reach

Financial Position 06
03
Technology

04 05
Product Diversity Price Policy
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Corporate Strategy: ABNL
Vision: To be a premium conglomerate building leadership in businesses and creating value for all the stakeholders

The components of corporate strategy are:

1 Investing in promising sectors

5 1
2 Building leadership in businesses

3 A platform to drive synergy of resources

4 2
4 Delivering best value to all stakeholders

3 5 Leveraging learning curve

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CORPORATE STRATEGY OF PANTALOONS:

• Provide value to customers and stakeholders- Deliver everything, everywhere and at every time in
the most profitable manner
• Customer centric – constantly evolving strategies attending to changing customer trends
• Strategy of cyclic process of learning, unlearning and relearning with respect to market scenarios
Rewrite rules, retain values

Strategy of business expansion Achieve quick break-even

1

Low cost pricing

Corporate Strategy to maximize
strategy 2
market share Target specific attributes

India One
3
Class specific strategy India Two

India Three
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MERGER MOTIVES: ACQUIRER & TARGET

ACQUIRER: ADITYA BIRLA NUVO LIMITED/MADURA TARGET: PANTALOONS RETAIL

LIFESTYLE & FASHION
MOTIVES: MOTIVES:.

• Business expansion into branded apparel domain • Reduce the accumulated debt to the tune of
INR.1600 crores
• Expansion of the existing portfolios by the
addition of brands across men’s, women’s and • Lower the inventory days leading to more
children segments efficient working capital
• Leverage the opportunities of cross-selling
• Help attain economies of scale and lower the
costs
• Synergies in operations in terms of procurement
& distribution as well as marketing and new
product development

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DUE DILIGENCE

SNAPSHOT TO BE SHARED BY SUSHANT

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TYPE OF MERGER: 2012

• Aditya Birla Nuvo (Madura Fashion and Lifestyle) through its subsidiary: Peter England Fashion & Retail
Limited acquired Pantaloons business format, a part of Future Retail Group.
• The deal is an example of Forward Triangular Merger.
• The target subsidiary – Pantaloons business format is retained post-merger with the management being
replaced by that of Aditya Birla Nuvo Limited.

Aditya Birla Group Future Retail Group

Pantaloons Pantaloons
ABNL- A conglomerate;
Retail India Fashion & Retail
part of ABG
Limited Limited
As a subsidiary of ABNL

Madura Peter England Fashions

Fashion & Retail Limited

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DEAL CHARACTERISTICS: ABNL ACQUIRING PANTALOONS-2012
2. Pantaloons format business to be demerged from PRIL
3. Transfer apportioned debt of Rs.800 crores and
debentures of Rs.800 crores to the new entity
6. After listing of the new entity and on conversion of
debentures to equity, ABNL’s holding post-open offer shall
be a minimum of 50.01%.
7. The resulting entity shall become a subsidiary of ABNL
1. PRIL to issue debentures to ABNL worth Rs.800
crores convertible to equity shares in the resulting
entity
4. The debentures will be converted to equity after
demerger
5. ABNL to make an open offer of 26% to shareholders
of the resulting entity
*ABNL – Aditya Birla Nuvo Limited
*PRIL – Pantaloons Retail India Limited
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14
TYPE OF MERGER: 2015
• A business consolidation where all the apparels businesses under Aditya Birla Group come together under
one roof, to be named as Aditya Birla Fashion & Retail Limited.
• An all share deal – Explained under deal characteristics.
• A demerger under the scheme of arrangements;

ABNL- A conglomerate;
Aditya Birla Group
part of ABG

Demerge
Madura Madura
Fashion Lifestyle
Fashion unit of ABNL Part of MGLRCL-
subsidiary of ABNL

Aditya Birla
Pantaloons - Fashion and Retail
PFRL Merger Limited
Listed subsidiary
of ABNL

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ORGANIZATIONAL ISSUES:

Top Management Turnover & Layoffs: FRIENDLY TAKEOVER

• All the employees, staff and workmen of PRIL shall become the employees of the Resulting Company,
ABNL, on terms and conditions no less favourable than those on which they earlier had.
• All other benefits, contributions and funds were also transferred to ABNL with no substantial effect
to the employees without any break or interruption in service

Cultural Issues: IT ALL STARTED HERE: KOLKATA

• Since both the companies are Indian, their work culture and policies have been very similar. SO,
there wasn’t any cultural issue, post merger
• For PRIL, it started in KOLKATA and ended in KOLKATA

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ORGANIZATIONAL ISSUES: 2012

Post Merger Integration:

• Rakesh Biyani, managing director at PRIL, and Kailash Bhatia, an executive director at the firm, will
continue to manage the Pantaloons chain
• A Fashion Council will be set up, comprising the leadership teams of Aditya Birla Group’s Madura
Garments and Future Group, to aid and advise the management with the objective of fully leveraging
the strengths of Madura Garments and Pantaloons.
• JM Financial Ltd acted as the sole financial adviser to the transaction

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Was the Deal a Success or a Failure???

How do you evaluate the success of an Acquisition?

I. Has the combined entity moved towards achieving its strategic goals
II. Has the firm delivered economic value to its shareholders

Metric
2018 2017 2016 2015 2014 2013 2012 2011

Net Margin 1.58% 0.81% -1.65% -11.90% -11.02% -5.20% 6.48% 0.08%

ROE 10.78% 5.58% -11.04% -66.02% -32.40% -8.95% 100.83% 7.69%

Sales Growth 8.13% 9.44% 227.48% 11.41% 29.26% 7273.15% 36.38%

Debt to Equity 1.61 2.12 1.57 3.58 1.75 1.92 0.00 0.00

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Was the Deal a Success or a Failure???

How do you evaluate the success of an Acquisition?

I. Has the combined entity moved towards achieving its strategic goals
II. Has the firm delivered economic value to its shareholders

Metric
2018 2017 2016 2015 2014 2013 2012 2011

Net Margin 1.58% 0.81% -1.65% -11.90% -11.02% -5.20% 6.48% 0.08%

ROE 10.78% 5.58% -11.04% -66.02% -32.40% -8.95% 100.83% 7.69%

Sales Growth 8.13% 9.44% 227.48% 11.41% 29.26% 7273.15% 36.38%

Debt to Equity 1.61 2.12 1.57 3.58 1.75 1.92 0.00 0.00

 Net profit margins declined consistently after the deal from 6.48% in 2012 to -11.90% in 2015
 After the restructuring in 2015, net margins have improved but still behind the industry average of over 5%
 Debt to Equity ratio has been very high since the acquisition; The fashion industry has a D/E ratio of ~0.5
 ROE kept on declining post 2012 deal; After the restructuring in 2015, the returns have improved to 10.78%
in FY18
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MARKET REACTION ( Event Study WRT Acquirer – ABNL)

Calculated Nuvo Returns

10

RETURS OF ADITYA BIRLA

5

Alpha =0.20215 0

NUVO
Beta =0.98835 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81
-5
-10
DATES BEFORE AND AFTER ANNOUNCEMENT OF DEAL

Calculated Nuvo Actual Nuvo

Clean Period Data

CUMULATIVE AVERAGE RESIDUAL CALCULATED
FOR NUVO
10 Nuvo Return = 0.202152 + 0.988352 * Market Return

Cumulative Average Residual

5

0
-40-36-32-28-24-20-16-12 -8 -4 0 4 8 12 16 20 24 28 32 36 40
-5

-10

-15
Days

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T Statistics to gain insights

NUVO was having a prolonged negative CAR before the acquisition, which started
improving before the announcement and became positive just after announcement of deal

The CAR rose positive for a short time before again falling back back to negative (low level)

The CAR calculated over variable windows do not show any significant amount of abnormal
(+ve/-ve) returns
No insider information
Assess price of asset Efficient Market
leakage

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Deal Premium Comparison and insights
Deal Premium: 36.5%

Impact of Negotiation Increasing Market

• The deal is a friendly one so Share
the negotiations would not • Pantaloons had large
have been very strict as in number of stores, greater
the case of forced take-overs reach, variety garment
brands and an established
technology led supply chain
system. Madura wanted to
increase market share by
leveraging these strengths
Buying public shares – Open offer
• 26% of the firm value lying in the public shares were bought. A
huge premium was paid which constitutes a very big share 23
THANK YOU

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