India: Warburg – Future Capital – Deal Dissected

I. Prologue

With the global economic turmoil and the added uncertainty that has ushered in the Indian regulatory scenario since the beginning of the year 2012, it was only obvious for the total number of M&A transactions in the first half of 2012 slipping down as compared to 2010 and 2011. Having said that, it is rather surprising to note that the vast potential of the Indian market is still attracting a large number of foreign investors willing to offer attractive exit prices to the Indian promoters.

This M&A Lab deals with one of the most-talked about exits of 2012, which was initiated in June 2012 when Mr. Kishore Biyani (promoter of Future Capital Holdings Limited ("FCH")), after his long haul negotiations with several private equity firms finally squared down to US based private equity firm Warburg Pincus to sell Future Group's stake in FCH, a non-core financial business of the Future Group (the "Deal"). The Deal was launched on June 4, 2012 with the execution of definitive agreements between Cloverdell Investment Limited ("Cloverdell"), an entity belonging to Warburg Pincus, FCH and the promoters of FCH whereby Cloverdell agreed to acquire upto 55.36%1 of the issued and paid up equity share capital of FCH from the Sellers. With the closing of the Deal Cloverdell acquired 68.40% of the Diluted Voting Share Capital of FCH for a total consideration of approximately USD 136.5 million.

This M&A Lab attempts to probe deeper into the Deal, a multi-million dollar transaction which provides Warburg the opportunity to test its fortune in the financial services sector in India and Future Group the opportunity to de-leverage its balance sheet and take its retail plans ahead, thereby proving to be in the best interests of both the parties. As always, we seek to analyze the legal, regulatory, tax, financing and few other commercial dimensions of the Deal.

II. Executive summary

On June 4, 2012, Cloverdell along with persons acting in concert (("PAC" or the "WP XI Fund"), Cloverdell and WP XI Fund collectively referred to as ("Warburg Pincus")), executed a share purchase agreement ("SPA") with Pantaloon Retail (India) Limited ("PRIL"), Future Value Retail Limited ("FVRL") and Mr. Kishore Biyani (all three are part of the promoter group of FCH) to purchase the stake of PRIL and FVRL (PRIL and FVRL are collectively referred as "Sellers") in FCH in two tranches. Under the First Tranche (as defined below), Cloverdell agreed to purchase 37.88% of the total issued and paid up equity share capital (on a fully diluted basis) of FCH. The quantum of purchase under the Second Tranche (as defined below) was kept contingent on the number of shares validly tendered and accepted from the shareholders in the Open Offer (as defined below). Under the terms of the SPA, the First Tranche and the Second Tranche was anticipated to represent a maximum of 50.83% (i.e. 37.88% under the First Tranche and maximum of 12.95% under the Second Tranche) of the total issued and paid up equity share capital of FCH. However, since the shares validly tendered under the Open Offer were 24.43%, the total shares finally acquired under the First Tranche and Second Tranche finally squared down to 39.45%.

Simultaneous to the execution of the SPA, Cloverdell also executed a share subscription agreement ("SSA") with FCH, pursuant to which it agreed to infuse approximately INR 1 billion ("Subscription Amount") for the subscription of 30,086,420 equity shares ("Subscription Shares") and 30,086,420 compulsorily convertible preference shares ("Subscription CCPS") of FCH by way of a preferential allotment. The subscription of Subscription Shares resulted in an increase in Cloverdell's stake in FCH by 4.52%.

The intention of Cloverdell to increase its stake in FCH triggered Regulation 3(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code 2011"), thereby mandating an open offer to the public shareholders of FCH for acquisition of minimum of 26% of the total issued and paid-up equity share capital of FCH.

According to the provisions of Regulation 15(1) of Takeover Code 2011, on the even date of execution of SPA and SSA, Cloverdell made a public announcement2 ("PA") of the open offer for acquisition of shares constituting 26% of the issued and paid up equity share capital of FCH. Subsequently, Cloverdell also issued the Detailed Public Statement3 ("DPS") on June 11, 2011 and within 5 (five) working days of issuing such DPS, the Draft Letter of Offer4 ("DLO") was filed with the Securities and Exchange Board of India ("SEBI"). After receiving comments from SEBI on the DLO, FCH filed the revised letter of offer5 ("Letter of Offer") with SEBI on September 21, 2012. The Open Offer finally opened on October 5, 2012 till October 18, 2012.

As per the Letter of Offer, the Deal was valued somewhere between USD 110 million to USD 137 million (approximately).


1. All percentages mentioned in this Lab are calculated on the Diluted Voting Share Capital. Please refer to page 7 for the calculation. 2 Public Announcement, available at,

3 Detailed Public Statement, available at, , under Regulation 13(4), Takeover Code 2011.

4 Draft Letter of Offer, available at, , under Regulation 16(1), Takeover Coe 2011 .

5 Letter of Offer, available at,

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Mukul Aggarwal
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