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Duracell wins battle of bunnies for Eveready

Pips Energizer in race to buy co’s battery and flashlight business for Rs 1,600-1,700 crore.

Updated: Sep 09, 2019, 07.49 AM IST
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The company’s auditors in their limited review report have mentioned that Eveready Industries has given unsecured inter-corporate deposits (ICDs) to certain promoter group companies.
MUMBAI | KOLKATA: Duracell Inc, owned by Warren Buffett’s Berkshire Hathaway, has pipped rival Energizer Holdings and is set to acquire BM Khaitan’s flagship Eveready Industries’ battery and flashlight business in a slump sale for Rs 1,600-1,700 crore, said multiple sources aware of the matter. The deal includes manufacturing plants, distribution network and the Eveready brand.

The all-cash deal is in the final stages of negotiation and is expected to be announced soon. One person said the deal could help the company wipe out its debt.

The transaction caps months of talks between the Khaitan family and Duracell as well as Energizer, also US-based, which owns the Eveready brand in the US and China, apart from multiple bulgebracket private equity firms. A slump sale doesn’t ascribe separate values to the various parts of assets being sold.

According to two persons familiar with the transaction, the American firm will only own the Eveready brand in India and become owners of an annual installed capacity of 1.5 billion batteries and over 20 million flashlights per year. The businesses generate a revenue of roughly Rs 900 crore.

“As per the agreement, both Duracell and the Williamson Magor group will leverage Eveready Industries’ existing distribution network and brand for their respective businesses,” said one of the people cited above.

Deal Values Company at Twice Current EV

“Eveready Industries will continue to leverage the company’s brand as well as the distribution network for their lighting and appliances business on a royalty free basis,” said the person.

Duracell’s proposed offer for the battery and flashlight business excludes Eveready Industries’ lighting, electrical appliances, confectionery and an fast-moving consumer goods (FMCG) joint venture that clock a cumulative turnover of Rs 500-600 crore. A person close to deal said the Khaitans can scale up the residual business in the coming years.

The deal also excludes the company’s non-core real estate including the Kolkata office at Rainey Park. Market analysts tracking the group said the sale of the company’s Kolkata head office as well as land in Chennai and New Delhi will fetch an additional Rs 200 crore.

“If the deal is clinched, it will be a blessing in disguise… The company will become debt free,” said the person cited above. “It will be out of the woods. EIIL’s total loan outstanding from lending institutions like UCO Bank, HDFC Bank, ICICI Bank, RBL Bank, IndusInd Bank among others (plus contingent liability) of Rs 700 crore will get wiped out.” Although the lowgrowth, profitable battery business is being sold, the company will save Rs 60-70 crore of interest cost annually, the person said.

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The deal coupled with the residual business of lighting and appliances and non-core real estate pegs EIIL’s enterprise value (EV) at roughly Rs 2,500 crore. Current EV of EIIL is Rs 700 crore and market cap Rs 550 crore. The deal values it at twice the current EV.

A Williamson Magor spokesperson declined to comment. Duracell didn’t respond. While Eveready had mandated Kotak Mahindra Bank and law firm Khaitan & Co, Duracell had requisitioned the services of Shardul Amarchand Mangaldas & Co and the inhouse Berkshire Hathaway team.

Eveready, part of the diversified Khaitan-led Williamson Magor group with interests in tea, engineering and consumer products, is a leading player in dry cell batteries and flashlights. Promoters own 45% of the publicly traded company.EIIL’s batteries segment accounted for 50% of its turnover of Rs 1,475 crore in FY18. According to the firm’s annual report, the Indian market for dry-cell batteries is estimated to be worth Rs 1,600 crore by value. Eveready has a market share of 50% between its Eveready and Powercell brands.

The cash-strapped group has been trying to sell assets, including tea gardens, in India and overseas to pay off lenders. Lenders such as Yes Bank converted part of their exposure to equity in McLeod Russell recently.

India’s largest maker of dry-cell batteries, Eveready saw a 63% decline in net profit to Rs 6.85 crore for the first quarter ended June 30. Profit in the corresponding year earlier stood at Rs 18.35 crore.

Decline was largely on account of a slowdown across rural and semi-urban markets and came as the company saw a 16% dip in operating income to Rs 321 crore for the June quarter, against Rs 383.34 crore in the year-ago period.

The company’s auditors in their limited review report have mentioned that Eveready Industries has given unsecured inter-corporate deposits (ICDs) to certain promoter group companies. Total outstanding amount of ICDs, including interest, is around Rs 389 crore. On top of that, Eveready has given corporate guarantees and post-dated cheques on behalf of certain promoter group companies in excess of Rs 134 crore and advances of Rs 72 crore as on June 30. This is to another company on the basis of a memorandum of understanding (MoU) toward transfer “by way of assignment, the leasehold rights of a property”.

The lease is yet to be executed and can be done so by March 2020.

"The management believes outstanding dues shall be recovered and no provision is required at this stage,” the company said in notes for the first-quarter results.

It also pointed out that, in case of a default, the repayment of these deposits and guarantees and interest dues to other companies have been guaranteed by certain promoter directors (of Eveready).

“A promoter group level restructuring is underway to monetise assets and meet various liabilities of the companies (part of promoter group),” as per the notes.
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