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JK Tyre & Industries (JK Tyre) and JK Asia Pacific Singapore Pte Ltd, a wholly-owned subsidiary of JK Tyre, on Saturday said they have signed a binding term-sheet with Kesoram Industries Ltd (KIL) to acquire 100 per cent equity in Cavendish Industries Ltd (CIL) at a value of ₹2,200 crore.
CIL houses a tyre business undertaking located at Haridwar (Laksar) which manufactures a range of tyres, tubes and flaps.
“JK Group has agreed for this acquisition at an enterprise value not exceeding ₹2,200 crore, subject to conditions, wherein JK Tyre will hold the largest shareholding block and shall have substantial management control of CIL with an option to place up to 55 per cent with its associates/ group companies,” JK Tyre said in a statement.
The acquisition is proposed to be funded, by combination of debt and internal accruals raised by JK Tyre and other JK Group entities, it said, adding the financial exposure of JK Tyre in the acquisition is expected to be of the order of ₹450 crore.
“The transaction is a reflection of the inherent strength of the company in undertaking acquisitions with turnaround potential and successfully delivering results to all the stakeholders in the business. This was recently evidenced by a similar success story in JK Tyre’s acquisition of Tornel, Mexico,” said.
The final transaction is expected to consummate over next few months (subject to various approvals) with definitive documentation expected to be executed between the parties in due course of time, the company said.
The acquisition will provide JK Tyre with further impetus towards ready expansion in the truck and bus radials segment where it is a market leader as well as entry into the fast growing two-three wheeler tyre market.
Accordingly, JK Tyre estimates the transaction to be strategic, revenue accretive and synergistic with its existing tyre business, the company said, adding that Aurum Equity Partners LLP is acting as transaction advisors to JK Group for this deal.
Kesoram to reduce debt burden
The transaction was done through Cavendish Industries Ltd, a 99 per cent subsidiary of Kesoram Industries. In April this year, Kesoram had transferred the unit in Haridwar district of Uttarakhand to Cavendish for Rs 2,800 crore to facilitate the divestment.
“However, change in market consideration prompted us to down-value the figure. Kesoram would get the new valuation from Cavendish and not the earlier declared figure,” explained CFO of Kesoram, Tridiv Das.
In a statement, Kesoram said it has signed a binding term-sheet with JK Tyre to divest Cavendish for a consideration of Rs 2195 crore. The process of completion of this deal is likely to be concluded within December this year, the statement added.
Kesoram said the money would be utilised for reduction of its debt burden. The company has debt worth around Rs 4,400 crore.
Kesoram was not able to finalise the accounts and annual financial statement for 2014-15 because of the long-drawn negotiations with JK Tyre and subsequent reduction of debt.
The Registrar of Companies, West Bengal, by an order on August 10, had extended the time to hold Kesoram's 96th Annual General Meeting to December 31.
The Uttarakhand unit has truck, bus and two-wheeler manufacturing facilities. Its present capacity for making tyres is 320 tonnes a day. It can also produce 140 steel radial tyres and 90 two-wheeler tyres a day.
Shares of JK Tyre closed at ₹108.45 on the BSE on Friday, up 2.07 per cent from the previous close.
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