Private equity firms KKR and Apax Partners are the only ones left in the race for a significant stake in Café Coffee Day (CCD), as three others including Oyo have backed out after showing early interest, three people familiar with the matter said.
KKR and Apax Partners are now conducting due diligence of the coffee chain, the people said.
SoftBank-backed hospitality chain Oyo was interested only in the CCD brand which its owner Coffee Day Enterprises Ltd (CDEL) was unwilling to offer, while TPG Capital and Bain Capital opted out mainly due to differences over valuation, they said.
“After an analysis, the company (CDEL) had arrived at an amount that needs to be invested if CCD were to survive and thrive. That is quite a steep number and the investors (who opted out) are not willing to commit the requisite amount,” said a person involved with the deal. ET on November 25 reported that Oyo and Apax had initiated talks with the CDEL board to buy the group’s coffee business. On November 15, ET had reported about KKR, TPG and Bain Capital signing non-disclosure agreements with CDEL and initiating talks for the stake.
CCD, a KKR spokesperson and an Apax representative declined to comment. Oyo said it had no comment to offer. Bain Capital refused to comment and TPG did not respond to ETs queries.
Talks with Oyo collapsed after CCD refused to sell only the brand name as the hospitality company had sought, people in the know said.
“Some of the players were only interested in the CCD brand but hiving it off looks tough at this point. Not many investors are willing to take certain reputational risks,” said one of the people.
Some of the investors were also cautious about a forensic report that is awaited, the people said. The suitors will be conducting their own forensic due diligence for comfort, said one of them. For the deal, CDEL is expected to carve out the coffee business — cafés, coffee exports, estates and vending machines —that is housed under the Coffee Day Global Ltd subsidiary.
The board is expected to speed up talks with interested investors once the investigation report by former Central Bureau of Investigation official Ashok Kumar Malhotra is submitted. He is looking into a letter that CCD founder VG Siddhartha purportedly wrote to the board on July 27, two days before he went missing. He was found dead on July 31.
Following Siddhartha’s death, the board has struggled to run operations amid unpaid dues. At the end of July, CDEL’s debt was Rs 4,970 crore, which included that of listed group company Sical Logistics. The promoter shareholding has almost halved and is currently 25.35% but 80% of it is pledged with lenders.
With 1,480 outlets nationally, CCD has the largest food and beverage network in the country, even after shutting 280 stores to improve profitability.
The CDEL board had previously approached the Tata Group, which runs the Starbucks franchise in India, and the Jatia family, which operates the McDonald’s chain in western and southern India, but both were not interested in taking the talks forward, said people aware of the earlier rounds of talks.
The board had also reached out to ITC and Coca-Cola, which wanted the coffee business to be carved out into a separate entity before any potential deal. Neither ITC nor Coca-Cola — which runs Costa Coffee — has participated in the bidding.
Source: Economic Times