CESC, Spencer's Retail to merge, ratio 2.5:1

Spencer's, the retail arm of Kolkata-based RPG Enterprises, will invest between Rs 1,000 crore and Rs 1,200 crore to build a network of 2,000 stores by FY10 and will raise funds for the purpose in the next 2 to 4 quarters.

Briefing the media after the board of CESC cleared the merger of Pathik Retail with itself, Sanjeev Goenka said the two entities would be merged under a 2.5:1 share swap ratio.

As a result, the Goenkas as sole promoters of Pathik Retail would get 31 million shares of CESC, pushing up the paid-up equity base of CESC 
from Rs 80 crore to Rs 113 crore, and shareholding of the Goenkas as promoters from around 40% now to approximately 55% of CESC's
equity.

Pathik Retail is the holding company for Spencer's Retail.

Following the merger, CESC will have three businesses - power, real estate and retail - in its portfolio.

Goenka said the addition of the high-growth retail business to the CESC portfolio against issue of 31 million shares would deliver great value to
existing shareholders of CESC.

"Acquisition of such a business would have cost CESC a much larger sum", he said.

Once the retail business started paying dividend to CESC, the company would be able to deliver an additional benefit to its power consumers in the form of lower power tariffs, he added.

The group intends to build CESC into a diversified business enterprise with profits in the region of Rs 1,000 crore by FY10 by when the retail
business alone is expected to generate revenues of Rs 5,000 crore from 2,000 stores against Rs 750-odd crore from 135 stores now.

The retail business is at present losing money because of the rapid expansion - a shop a day - currently underway.

Goenka said the merger would become effective from April 1, 2007, subject to the proposal being cleared by the company's shareholders.

CESC would have the main balance-sheet from its power business, and its retail and real estate businesses would have their accounts attached as
balance-sheets of subsidiary companies to the main accounts.

"It will be a revenue neutral proposal with CESC remaining untouched by any losses made by these subsidiaries", he said.

The merger would grow the topline of CESC from Rs 2,500 crore now with profits of Rs 179 crore.

The RPG group expects 25-30% of its total revenues to come from its retail business in the near future, from the present 5%.

In FY07, the retail business is expected to touch a turnover of Rs 750 crore, of a total group turnover of Rs 11,000 crore.

Currently there were 125 Spencer's stores across 25 cities,comprising 8 hypermarkets, 5 Spencer's Super Stores, 104 Spencer's Daily outlets, three Spencer's Fresh stores, and 5 Spencer's Express stores.

The total contracted area for all Spencer's stores across the country is over 1 million sq ft.

There are four divisions in the retail business, Spencer's Retail, RPG Cellucom, Books & Beyond and Music World.