Future Retail Ltd has agreed to acquire the retail and allied businesses of Hyderabad-based Heritage Foods Ltd, as the Kishore Biyani-led company continues to strike merger and acquisition deals to expand its operations.
The all-stock deal will include Heritage Foods’ grocery and food retail stores as well as bakery and farm sourcing businesses, Future Retail said in a stock-exchange filing.
The Future Group company said it will issue about 1.78 crore new shares to Heritage Foods, which will give it a 3.65% stake in Future Retail when the transaction is completed. A 3.65% stake in Future Retail would be worth about Rs 262.6 crore ($39 million), according to stock-exchange data based on Monday's share prices.
Heritage Foods has also agreed that if it sells shares of Future Retail it will share part of the proceeds with the Kishore Biyani company. If the sale proceeds are between Rs 400 crore and Rs 500 crore, Heritage Foods will share 50% of the amount above Rs 400 crore. In case the sale proceeds are above Rs 500 crore, Heritage Foods will give Future Retail Rs 50 crore plus 75% of the amount above Rs 500 crore.
The transaction will add 124 Heritage Fresh retail outlets in Bengaluru, Hyderabad and Chennai to Future Retail’s network.
Future Retail’s existing network comprises 379 small-format EasyDay stores in northern cities of India. It also operates 232 large-format Big Bazaar stores across the country, along with other chains such as apparel chain fbb, Foodhall, electronics store eZone and furniture and home décor chain Home Town.
Heritage Foods, owned by family members of Andhra Pradesh chief minister N Chandrababu Naidu, was founded in 1992. It has six business verticals—dairy, retail, agriculture, bakery, renewable energy and veterinary care. The retail and allied businesses posted revenue of Rs 629.70 crore during 2015-16.
The company started retail operations in 2006. The stores sell a wide range of household items, consumer products, staples, and fresh fruits and vegetables.
Heritage also has integrated agricultural pack houses at Chittoor in Andhra Pradesh and Medak in Telangana that form the fruits and vegetables supply chain for the retail stores.
According to the deal, Heritage Foods will first spin off its retail, bakery, farm sourcing and veterinary care businesses in a fully owned subsidiary. Subsequently, all these businesses, except veterinary care, will be merged with Future Retail.
The deal is subject to approvals from relevant regulatory authorities and shareholders of the companies.
Other deals of Future Group, Heritage Foods
Future Group, the second-biggest brick-and-mortar retailer after billionaire Mukesh Ambani-led Reliance Retail Ltd, had earlier acquired Big Apple, Nilgiri’s and Bharti Retail. It had purchased Nilgiri’s, a south India-based chain, in November 2014.
In September, Future Group reportedly bought Sangam Direct, a chain of retail stores earlier known as Sabka Bazaar, from Wadhawan Retail Ventures Pvt. Ltd for an undisclosed amount.
Biyani, who had accused e-tailers of predatory pricing backed with foreign funding, made his first acquisition in the e-commerce segment earlier this year by taking over Rocket Internet-backed online furniture and home furnishings store FabFurnish.com in an all-cash deal.
The group also operates its own online shopping ventures such as Bigbazaardirect.com and futurebazaar.com but has limited presence in India’s overall e-commerce industry.
Meanwhile, Heritage Foods also has been acquiring companies mainly in the dairy business. Late last month, Heritage Foods agreed to acquire the dairy business of Reliance Retail Ltd for an undisclosed amount.
In May, Heritage Foods acquired the assets of Teja Dairy in Raichur district of Karnataka. It invested Rs 60 lakh to acquire the assets that include a dairy plant with a processing capacity of 20,000 litres per day.
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