Dhoot bets on new ways to fund buys

As Videocon Industries closes in on South Korea's Daewoo Electronics, its promoter Venugopal Dhoot is unlikely to lose sleep over the financing of the deal, even though the $730 million (Rs 3,302 crore) price quoted in the memorandum of understanding is $30-50 million higher than what analysts had anticipated.

While the Videocon brass remains tight-lipped, giving the "too-early-to-comment" argument, the Mumbai-based group is expected to once again take recourse to its transaction-tested method of innovative financing that has served it very well in previous acquisitions.

In the past, Videocon has acquired distressed companies "� Daewoo Electronics, part of the fast-shrinking chaebol from which its name is derived, very clearly falls in this category "� at very low, sometimes no, price.

For instance, when it took control of the cathode ray picture tube manufacturing capacity of Thomson SA in June last year, no cash changed hands.

Videocon started by acquiring Thomson's Italian colour picture tube factory, followed by its global colour picture-tube manufacturing business, including units in China, Poland and Mexico, and the research and development unit set up by an offshore entity of the group for 240 million euros (approximately Rs 1,260 crore).

The money, however, came back to Videocon as Thomson invested the same amount to pick up equity stakes in Videocon group companies: 14 per cent in the oil and gas venture (Videocon Industries) for about Rs 1,200 crore and another 12.5 per cent in Videocon International for Rs 80 crore.

A fortnight later, Videocon acquired the entire shareholding of AB Electrolux (91.85 per cent) in its loss-making Indian subsidiary, Electrolux Kelvinator.

The deal included a licence agreement with AB Electrolux to distribute and market the Electrolux, Kelvinator and Allwyn brands in India and other Saarc countries.

In this case, AB Electrolux invested about $94 million (Rs 410 crore) in the global depository receipts of Videocon Industries to take about 5 per cent stake in the company. "It was financial wizardry at work again," say industry experts.

For the Daewoo deal, Videocon leads a consortium that includes RHJ International, the Brussels-based holding company of private equity player Ripplewood.

On Monday, the day the MoU was signed with Daewoo's creditors, RHJ International entered into a formal agreement with Videocon to jointly acquire Daewoo Electronics and the Belgian company expects to hold about half the equity in the consortium.

That means Videocon Industries will not pay more than half the cost of the acquisition. And then, don't be surprised if Dhoot comes up with plans to have the money ploughed back.

Already, Daewoo's creditors, which include Korea Asset Management Corporation and Woori Bank, have been quoted as saying that the acquisition price is subject to change after a month-long review.