Allcargo Logistics, part of the Avvashya Group, has forayed into express logistics segment by acquiring a 45% stake in Gati.
To fund this deal worth Rs.450 crore, Allcargo will sell some of its non-core assets such as cranes and equipment as part of internal accrual arrangement.
Also, the company is in talks with large private equity and real estate players to dilute its stake in five logistics parks.
Allcargo’s stake buy in Gati is a combination of 10% promoter shareholding, which will trigger an open offer of 26% and the balance will be via preferential shares.
Allcargo has chalked out a plan to become a majority stakeholder in the express business.
Interestingly, Kintetsu World Express (KWE), part of the $10.3 billion Kintetsu Group Holdings, Japan, which entered into a joint venture with Gati to form the GATI-KWE subsidiary in 2012, will continue to remain invested and retain its association with GATI.
Gati, founded by Mahendra Agarwal in 1989, pioneered express distribution in India. It’s service offerings include express distribution to third-party (3PL) operations.
As of September 2019, Gati’s promoter and group promoter stake in the company stands at 17.8%, of which 70% has been pledged. After stake sale, promoter and group promoter’s stake in the company will reduce to 7.8%.
Funds for the deal will be a combination of debt and internal accruals apart from the open offer. Also, Deloitte 2018 report pegs Indian express industry growth at a compounded annual growth rate of 17% and reaches Rs.48,000 crore by 2023.
What should deal mean for All Cargo and Gati shareholders?
We believe that in this deal All Cargo will be the bigger beneficiary wherein it is offering a price of Rs.75 to Gati shareholders.
We expect the open offer to follow soon after which the benefits of integration and merger will be reflected from FY21 onwards for All Cargo.
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