Crompton Greaves alters its business de-merger strategy, may split vertically

NEW DELHI: The Avantha Group has decided to modify the restructuring programme for flagship company Crompton Greaves Ltd at its board meeting on Thursday, two persons aware of the plan told ET.
"Promoters have decided to vertically split the consumer and industrial businesses of Crompton Greaves into two parts, creating mirror images of the existing shareholding in the new entities that will be created following demerger," said one of the persons. "The scheme is expected to be approved at the board meeting."

The board had approved a different demerger scheme in October 2014. The consumer products business was to be hived off into a new entity—Crompton Consumer Products Ltd (CCPL), and its ownership was to be split three ways.

Crompton Greaves would have retained 25% plus one share of CCPL and the remaining 75% minus one share would have been distributed among the shareholders of Crompton Greaves that include the Thapar family (the promoters) and public shareholders.

As a result, Crompton Greaves would have kept the industrial business and been a holding company for CCPL. Avantha had planned to keep control of Crompton Greaves and focus on the industrial business. It subsequently planned to bring in a strategic investor for CCPL.

"The modification of the restructuring schemes was required after change in the thought process of the promoters as they decided to bring in astrategic investor in industrial business also. To retain 25% plus one share of CCPL in the industrial business does not make any business sense," said the second person.


"Now they will bring strategic investors in both entities after the demerger to scale up the business to a new level in both the divisions," said the first person. Following the vertical demerger scheme, many suitors are expected to show keen interest as it will give complete clarity in terms of management and ownership to potential investors, he added. "Some leading homegrown players such as Havells India and leading private equity funds like Temasek have shown keen interest in investing in CCPL," said the person cited above. The enterprise value of CCPL would be about Rs 7,000 crore, he added.

In the case of the industrial division, the group has received interest from leading global companies such as Japanese manufacturer of electric motors Nidec Corp. and Minebea Co. Ltd and French engineering major Alstom. The group is looking at a valuation for the industrial division of "$700-800 million," said the person.


The potential suitors named above couldn't immediately be reached for comment. An Avantha spokesperson confirmed that a board meeting would be held on February 19 but said that the group does not comment on speculation. "The group will eventually either sell the both the divisions or at least sell a significant strategic stake in both divisions to two separate sets of investors to maximise valuation," said one of the persons cited above.

"There are quite a number of suitors for both the divisions separately (and) that will optimise the valuation." Billionaire Gautam Thapar, who originally planned to sell all of Crompton Greaves, changed his strategy sometime around July 2014 and in October the group announced its two-part plan involving the separation of the consumer products business. This was to be followed by Thapar selling part of his ownership in the new entity."