Ludhiana-based vertically integrated textile group, Vardhman Textiles Limited, has sealed a share sale and purchase agreement ("SPA"), an amended and restated shareholders agreement, and other incidental and ancillary agreements (collectively called "Transaction Documents") envisaging sale of 2,28,02,541 equity shares held by the Company in Vardhman Yarns and Threads Limited (VYTL) aggregating to 40 per cent of the issued, subscribed and paid-up equity share capital of VYTL to American & Efird Global, LLC (A&E Global) subject to fulfillment of certain conditions.
Sources in the company said that the textile giant now plans to focus on the yarn and fabric business and is eyeing organic and inorganic expansion to consolidate its presence in yarn and fabric segments. The proceeds from this stake sale would be used for expansion purpose in yarn and fabric manufacturing, he informed.
Pursuant to this SPA, the Company has sold 2,28,02,541 equity shares held by the Company in VYTL to A&E Global against a total consideration of Rs. 412.99 crores. Consequently, VYTL has ceased to be the subsidiary of the Company.
A&E Global became the joint venture partner of the Company in VYTL in 2008. In 2011, KPS Capital Partners (KPS) acquired A&E Global. Since then, KPS has taken a strategic direction for the growth of A&E Global, both organically and through acquisitions of thread companies worldwide, with a view to make A&E Global a sizeable and strong global company. In line with this strategy, A&E Global expressed its desire to have a majority ownership in VYTL to consolidate the VYTL financials as required under US GAAP.
The business of sewing thread is a complex business and requires significant management time and attention. In addition, the business definitely gets a boost if it is aligned to a global partner or it operates globally. In view of the Company's focus on other related textile business like yarn and fabric, it was inconceivable for the Company to spread sewing thread business in competition to the global players.
Therefore, the Board of Directors of the Company decided to disinvest in favour of A&E Global as the Company has had a very good relationship with A&E Global over the last 8 years.Post this transaction, the Company now holds 6,270,639 equity shares in VYTL aggregating to 11% and A&E Global holds 5,07,35,655 equity shares in VYTL aggregating to 89% of the issued, subscribed and paid-up equity share capital of VYTL.
The Company will now have a 'put option' and A&E Global will have a 'call option' on the remaining 11 per cent issued, subscribed and paid-up equity share capital of VYTL held by the Company and such put option / call option will be exercisable by the Company.