Saregama is going to de-merge its entire e-commerce distribution business related to sale of its physical products. It will be including Carvaan on digital marketplaces and identified non-core assets including investments in publication business as well.
In addition to this, the equity shares of the de-merged company named Digi-drive Distributors will now be listed on the BSE and the NSE.
Its shares were locked in the 5% upper circuit after the de-merger was approved by the company’s Board. Saregama closed at INR 4,828.45 on the BSE, up INR 229.90 or 5%. It had opened at INR 4,800 as against the previous close of INR 4,598.55.
WHAT DOES IT MEAN?
The scheme here doesn’t involve any cash consideration. The existing shareholders would be receiving two fully paid-up equity shares of INR 10 each of the resulting company which is Digidrive Distributors Ltd, credited as fully paid up, for every single equity share of INR 10 each of the demerged company.
Further, Saregama has been in process of seeking approval of its shareholders for splitting 1 equity share and sub-divide it into 10 equity shares of face value of INR 1 each. If the stock split is approved, the share entitlement ratio for the proposed demerger would be, 1 equity share of INR 10 each of Digidrive Distributors, for every 5 equity share of INR 1 each of Saregama India.
The turnover of the e-commerce distribution business in the financial year that ended March 31, 2021 was INR 17.42 Cr., which was 3.78% to the total turnover of Saregama.
“We highlight that demerger only involves digital distribution arm and Carvaan business stays with Saregama residual entity. As per our understanding, distribution arm enjoys non-exclusive rights of selling Carvaan on e-commerce platform, which will continue” – ICICI Securities
This transaction is however subject to receipt of approvals from the statutory, regulatory and customary approvals, including approvals from the BSE, NSE, jurisdictional National Company Law Tribunal and the shareholders along with the creditors of the companies involved in this Scheme.
VC Corporate Advisors Private Limited acted as fairness opinion to Saregama India Limited and RBSA Valuation Advisors acted as valuer in transaction.
BENEFITS OF THIS DE-MERGER
This de-merger is going to unlock the value for the shareholders and will likely enable focused growth strategy for the businesses in order to exploit specific opportunities. The de-merger is also going to provide investors better flexibility to select investments suiting best to their investment strategies as well as risk profile.
De-merger of non-core activity is believed to be a key positive that will likely drive a more focused approach of management on key business of music. Digital monetization is expected to provide more sustained growth according to ICICI Securities.
Key triggers for future price performance includes growth trajectory in music licencing, and with this action, the management envisages to grow at over 25 to 30% in medium term, along with the recovery in Carvaan on the back of economic reopening and expansion in several different segments.
“Online marketplace has considerable potential and skills acquired by the Demerged Company in the recent past can be utilized to manage end-to-end distribution activity and with a potential to add many more products. This will also benefit the Demerged Company’s business, as the negotiation strength generated by the distributors by selling a suite of products will help accelerate Carvaan sales too,” – the company said.
CONCLUSION
Saregama currently owns the largest music archives in our country and not to mention, one of the biggest in the world. The ownership of nearly 50% of all the music that has ever been recorded in India makes Saregama the most authoritative repository of musical heritage in our nation.
This demerger is a big step for the company. It is estimated that this step will open new gates and add more products that will be beneficial in a long run.
The main goal of this company is to demerge its e-commerce distribution business into the resulting company, unlocking the value of all of the businesses for the demerged company’s shareholders, along with attracting investors and providing better flexibility for capital access flexibility.
This is only for informational purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.
Sources: www.gwcindia.in. www.thehindubusinessline.com, www.businesstoday.in, www.marketscreener.com, www.business-standard.com,