German wholesaler Metro AG will sell its India business only if it gets the desired valuation, failing which it could continue running the business with a minority stake sale to private equity (PE) investor, said two persons aware of the development.
“At the moment, talks with Reliance Retail and Thailand’s CP Group are ongoing, but Metro won’t do a distress sale or sell at a price lower than what they have in mind,” said one of the persons. “They are accountable to the board at the headquarters in Germany.”
Metro expects a valuation of around $800 million to $1 billion for the Indian business, which has been up for sale as part of a global decision to exit the country due to heightened competition and lack of a level playing field between local and foreign retail companies, said the people cited above.
The decision to hold on to the India venture if expectations aren’t met was taken recently by the company. Reliance and Thailand’s largest conglomerate, Charoen Pokphand (CP) Group, are in the final lap of due diligence. Final bids are likely this month.
Reliance has been the frontrunner since a deal with the group is unlikely to face any backlash from the domestic retail lobby and it’s also not known to sack employees in a hurry, said the people cited above. However, Reliance is negotiating hard to lower the valuation, they said.
“In case the deal does not go through, Metro may induct a strategic partner like a PE fund and sell a portion of its stake to raise capital,” said one of the persons. “Some PE funds have shown interest.”
In response to a query, a Metro AG spokesperson said the company does not comment on market rumours and speculations.
Sticky Issue
Reliance and the CP Group have been undertaking due diligence of Metro’s India operations, having signed non-binding agreements in August. Reliance’s non-binding bid to acquire Metro Cash and Carry India is reportedly pegged at Rs 5,600 crore and that of CP Group at Rs 8,000 crore.
Metro posted sales of Rs 6,738 crore in FY21. It operates 31 wholesale stores in India with seven of them operating on company-owned land.
Overseas investment in offline trade has been a sticky issue, despite India allowing 100% foreign direct investment (FDI) in wholesale trade on a cash and carry basis. Metro was one of the first companies to enter the segment in India in 2003.
Lobby groups representing Indian retailers have accused overseas retailers of violating foreign direct investment rules, which the foreign companies have consistently denied. Some trade lobbies have complained to the government that a few global wholesalers have been flouting foreign direct investment rules by selling to consumers directly.
