Patanjali Foods Strengthens FMCG Presence with Acquisition of Non-Food Business

Patanjali Foods Ltd, a leading player in the Indian edible oils market, announced a strategic move to expand its product portfolio and solidify its position in the fast-moving consumer goods (FMCG) sector. The company has entered into a definitive agreement to acquire the entire non-food business undertaking of Patanjali Ayurved Ltd (PAL) for a total consideration of ₹1,100 crore.

Expanding Product Portfolio through Acquisition

The Board of Directors of Patanjali Foods, on July 1, 2024, approved the acquisition, subject to requisite approvals from shareholders, lenders, and regulatory authorities. This strategic move will bring PAL’s well-established hair care, skin care, dental care, and home care businesses under the Patanjali Foods umbrella. The acquisition encompasses all related assets and liabilities associated with these non-food product lines, currently operated from the manufacturing facility located at Patanjali Foods & Herbal Park in Haridwar, Uttarakhand. PAL’s non-food business generated a turnover of approximately ₹6,199 crore for the fiscal year ending March 31, 2024.

Fair Value and Arm’s Length Transaction

This acquisition qualifies as a related party transaction due to PAL being a promoter of Patanjali Foods. However, the company emphasises that the deal is conducted on a fair value and arm’s length basis. Key decision-makers include Ram Bharat, Managing Director of Patanjali Foods and Director of PAL, and Acharya Balkrishna, Chairman of Patanjali Foods and Managing Director of PAL, holding 98.54% of PAL’s equity.

Regulatory Approvals and Payment Structure

The acquisition is subject to approval from the Competition Commission of India (CCI) and shareholders of both companies. The effective date will be determined upon receipt of these approvals. The total consideration of ₹1,100 crore will be paid in tranches as outlined in the business transfer agreement (BTA). The first tranche of ₹220 crore will be paid within 10 business days of receiving CCI and shareholder approvals, along with the State Bank of India’s lender approval. Subsequent payments will follow, culminating in the final tranche of ₹55 crore upon conveyance of all properties associated with the acquired business undertaking.

Licensing Agreement to Secure Intellectual Property

In a separate but related development, the Board of Directors of Patanjali Foods has approved a licensing agreement with Patanjali Ayurved, subject to necessary approvals. This agreement allows Patanjali Foods, the licensee, to utilise PAL’s licensed intellectual properties. Given the aforementioned related party status, the licensing agreement is also conducted at a fair value and at arm’s length.

The license fee is structured as 3% of the actual gross sales value of the licensed products, with a minimum annual payment of ₹83 crore. The agreement will become effective once Patanjali Foods’ infrastructure is in place to accommodate the licensed products. No shares will be acquired under this agreement; the focus remains solely on licensing rights and associated payments.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.