Sanjiv Goenka of CESC told CNBC-TV18 the company will acquire 49.5% equity in FirstSource Solutions for Rs 280 crore.CESC is scheduled to buy 5% each from three FirstSource shareholders including ICICI, Temasek and Fidelity. Thereafter, CESC would provide an open offer at Rs 12.10 per share.
Sanjiv Goenka of CESC told CNBC-TV18 the company will acquire 49.5% equity in FirstSource Solutions for Rs 280 crore. FirstSource in turn would utilise the amount for the repayment of outstanding FCCBs, informed Goenka. CESC is scheduled to buy 5 percent each from three FirstSource shareholders including ICICI, Temasek and Fidelity. Thereafter, CESC would provide an open offer at Rs 12.10 per share.
Goenka further added that the acquisitions would help the company improve across segments and will provide them an opportunity to improve margins and revenues.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Could you walk us through the contours of the deal with respect to your acquisition or buy of Firstsource Solutions?
A: We have just had a board meeting and the board has approved that we would acquire 49.5 percent of the company, comprising of a direct subscription of 34.5 percent in the company by way of additional shares totaling to about Rs 280 crore. We will buy 5 percent each from three of the existing shareholders, ICICI, Temasek and Fidelity totaling to Rs 120 crore. That will roughly amount to Rs 398 or Rs 400 crore which is 49.5 percent of the company. We will be making an open offer for 26 percent of the shares which will follow immediately thereafter.
Q: With respect to the additional shares which you are purchasing worth Rs 280 crore odd, what price would these be done and what will be the kind of dilution that would entail for the company per se?
A: This will be at a price of Rs 12.10 per share, which is the SEBI formula and we will be at 34.5 percent of enhanced share capital.
Q: The open offer as well, will that also be Rs 12.10 per share?
Q: What would be the kind of control you would have on FirstSource with respect to the board membership, in terms of management control with this close to 50 percent stake?
A: We have great confidence in the current management headed by the Managing Director and the Vice Chairman. We would continue with that management. Frankly, if you control the shares then you can also have representation on the board.
Q: What was the rationale for CESC to acquire a stake of around 50 percent?
A: CESC has been looking at investing in a different sector given that the growth opportunities in the power sector are getting extremely long-drawn and somewhat challenging. Returns in the power sector are also not as lucrative as they previously were. With that in mind, we have engaged McKinsey to help us with advice on formulating the strategy for entry into a new sector.
The consultant scanned a number of sectors and then suggested an entry into the BPO sector. This opportunity came about thanks to Isec and ICICI who presented it to us. We saw it and liked it enough to carry out the due diligence process, McKinsey conducted the customer due-diligence, Deloitte conducted the financial due-diligence and Khaitan and Co did the legal due-diligence.
We did interact with the management who renewed our confidence and comfort in them. When we reported to our board, they were completely supportive of the move and we decided to move ahead with the acquisition.
Q: What is the approximate return-on-investment you expect?
A: We expecting a very healthy return because we do believe there is significant upside in this company. We do believe there are possibilities of improving margins, revenues and enhancing the customer base. The current managing director is also extremely capable and competent. So I think there will be a lot of improvement going forward.
Q: What is the return-on-investment you expect?
A: I am not going to forecast a number, but we are very optimistic of positive growth.
Q: What is the total investment that CESC must make, including the open offer and additional share issue and buying that 15-percent stake? What is the amount of investment into Firstsource?
A: Of the Rs 650 crore paid for the acquisition, Rs 280-290 crore will be invested into Firstsource.
Q: Any plans for majority stake? Have you formulated a potential roadmap to increase your stake in a year or six-months?
A: We will take each of the six months as they come.
Q: How does Firstsource plan to use the Rs 280 crore and what happens with respect to the outstanding FCCBs?
A: This will be used for repayment of the outstanding FCCBs.
Q: So would it completely eliminate the outstanding FCCBs?
A: Yes. The infusion of Rs 280 crore along with some additional funds will be used to clear the outstanding FCCBs. The management has assured that the bondholders will be paid on time.
Q: Would Firstsource be left with any kind of a debt after they clear out this chunk of FCCBs?
A: Yes, there will still be some debt, but I am told that the debt-equity levels will be 0.67:1 after our acquistion.
Q: Does CESC plan to invest more funds into Firstsource?
A: That is something that will be decided as the situation evolves, but we do expect this to be a very high-growth opportunity for us.
Q: What will be the impact of this acquisition on CESC's balance-sheet or profit and loss statement?
A: We expect these investments to significantly grow over the next few years and we expect the value of the acquisition to grow. We definitely expect returns from the acquisition to be very good.