Coffee Day Global sale may be delayed as valuation dips by half

K Giriprakash Bengaluru | Updated on November 26, 2019 Published on November 26, 2019

The total debt of the group is at about ₹5,000 crore   -  Karen Dias

As many as 24 suitors show interest in picking up stake, ink non-disclosure pact

Even as 24 suitors have gone ahead and signed a non-disclosure agreement with Coffee Day Enterprises (CDE) to pick up a majority stake in Coffee Day Global which runs the Cafe Coffee Day chain, the founder-family and the management are likely to delay the sale as its valuation has dipped by half to about ₹3,500 crore from what it was before the passing away of founder-CEO VG Siddhartha.

The management is also expected to wait till the probe committee, set up to investigate the contents of the letter purported to have been written by Siddhartha, submits its report to the board before going ahead with the talks with potential bidders.

The report was expected to be submitted by the end of November but now it may take a month more. Siddhartha, in his letter to the board and employees dated July 27, 2019, had said that the sale of Coffee Day Global could fetch the group between ₹7,000 crore and ₹8,000 crore.

The founder-family is also unlikely to sell off all its stake in the group as the current valuations may not be enough to square off its personal debt which is learnt to be about ₹3,500 crore. The total debt of the group is about ₹5,000 crore. The family owns 53.93 per cent stake in the group of which 75.70 per cent has been pledged as of June 30, 2019.

There has also been a delay in the completion of the sale of Global Village Tech Park to Blackstone-Salarpuria Sattva which has signed an agreement to acquire the asset for ₹2,800 crore.

As many as 24 entities, including Bain Capital and KKR, are learnt to have signed a non-disclosure agreement with the management while six-eight out of them have already had meetings with the CDE to discuss the possibility of taking a majority stake in its unlisted material subsidiary, Coffee Day Global.

Need for rejig

But it may not be easy to do so as CDE will need to be restructured with the possibility of Coffee Day Global being hived off as a separate entity and the entire process may take much longer. Siddhartha’s family is expected to keep 14-15 per cent stake in the hived off entity while the new partner could pick up about 26 per cent stake with management control. Once it gets the right valuation, the family could exit the business and proceeds from the sale would be used to square off the personal debt.

CDE has already made its initial move by appointing company veteran Venu Madhav as the Group Head- Strategy and M&A, to handle strategic investment decisions, including coordinating with prospective investors. Madhav has resigned from the directorship of Coffee Day Global (CDG) to focus on his new role.

The Coffee Day Enterprises’ shares closed at ₹47.75 on the BSE on Tuesday, about 5 per cent lesser than the previous closing price.

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Published on November 26, 2019
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