American brewer Molson Coors has acquired a majority stake in the Karan Bilimoria-owned Cobra Beer. In a telephonic interview, Bilimoria shares his insights on the deal with SUVI DOGRA. Edited excerpts:
Are you happy with the valuation considering that the market situation has changed since you started out?
In November-December last year, the total enterprise value of the business was quoted at 180-200 million pounds (around Rs 1,350-1,500 crore). In fact, we nearly entered into a transaction with a global company at a strict evaluation of 75 million pounds, excluding debt. In 2006, we raised millions of pounds of equity to fund growth. Equity valuations have plummeted. But in our case, the true value of the JV is not the upside money.The real value will be our share of profit from the JV.
As its chairman now, what is your vision?
The JV will be a new chapter for Cobra. Most brands in Europe are centuries old. And for a brand like Cobra, which is barely 20 years old, to become a household name against all odds is an achievement. The JV gives us the potential to go to the next level globally. It’s dream come true for the brand. It is a long-term proposition and the company can double its profit instantly.
Why has India been left out of the ambit of this deal?
Molson Coors does not have India in its global plans as of now. On the other hand, we at Cobra have invested in India for the past seven years. We have the option of buying the brewery in Bihar. We are bullish on India, which is one of the fastest-growing beer markets. I would be running the operations in India independent of the JV.
Will there be re-financing of the India business?
The Indian operations will need to be financed to complete the transaction of the Bihar brewery and to expand. We believe that once the finances are raised, we will achieve break-even within 12 months. A lot of money has been invested in India to get it to this stage.
Will the shareholding in India operations change?
I, by far, am the controlling shareholder. We will probably be issuing some equity in the market. There will be a combination of bank debt and equity. The arrangement is yet to be finalised.
Why did you choose a pre-pack arrangement for the JV?
We have been in the process of either selling or merging the Cobra business for over a year now, and although we knew Molson Coors would be the ideal partner, we evaluated other options too. This, however, transpired to be true. Coors was clear on a clean joint venture, so for many weeks we tried to launch a company voluntary arrangement (CVA) wherein our creditors will get an option of being paid over 50 pence/pound. Credit insurers gave the go-ahead on the CVA last week and despite being heavily marketed, we underwent the entire marketing exercise before going in for the pre-pack. The administration was the result of a long and thorough process whereby we explored a variety of options to maximise value for our creditors and stakeholders.
Under the arrangement, what will be the position of the creditors?
We evaluated all options and explored every single avenue before going for the pre-pack arrangement. While our secure creditors will be paid in full, unfortunately, we will not be able to cover unsecured creditors under the pre-pack. Unsecured creditors will not be paid even as we tried to address these issues under the CVA.
