Dr Ranjan Pai, the chairman of Manipal Group, is currently engaged in early discussions to invest in Aakash, a company owned by Byju. This move positions him as a white knight, supporting the tech firm facing challenges. Interestingly, Dr Pai had previously been one of the early investors in Byju. Byju Raveendran, who holds a significant 30 per cent stake in Aakash, is reportedly planning to partially sell some of his shares to Dr Pai for a sum ranging from $80 to $90 million. This partial offloading intends to secure funds to repay approximately Rs 800 crore to Davidson Kempner. This payment comes after Byju’s faced a technical default on a loan raised in May. Additionally, Byju Raveendran aims to release the pledge on Aakash shares he had initially offered as collateral for the Davidson Kempner loan.
This potential investment by Dr Pai holds financial implications and marks a full circle in the business relationship between him and Byju, reflecting their longstanding association in the tech sector.
Pai had previously invested through Aarin Capital but is expected to support through his family office this time. Byju is also looking to raise an additional $200 million (Rs 1,600 crore) for Aakash as part of the funding round, and there are rumours that sovereign wealth funds might join the investment, as per undisclosed sources.
In addition to the financial implications, this proposed investment by Dr Pai holds significant significance as it marks a full circle in the business relationship between him and Byju. Dr Pai has a longstanding association with the tech sector, having previously invested through Aarin Capital, and now he is expected to support through his family office. This move signifies confidence in Byju’s growth potential and ability to weather challenges effectively.
Challenges in Share Swap Deal between Byju’s and Aakash’s Shareholders
Notably, Byju Raveendran is also keen on releasing the pledge on Aakash shares he had initially offered as collateral for the Davidson Kempner loan. This move indicates Byju’s commitment to protecting its assets while seeking a resolution to the financial situation.
Aakash Educational Services, acquired by Byju for nearly $1 billion in 2021, has proven to be the company’s most successful acquisition. However, the due diligence process for the deal hasn’t been entirely smooth. The original plan was to pay around 70 per cent of the acquisition cost in cash, with the remaining amount being compensated to Aakash’s promoters and Blackstone (who owned over 30 per cent of Aakash before the acquisition) in the form of equity in Byju’s.
The shareholders of Aakash have expressed reluctance to proceed with the share swap with Byju, citing concerns about the declining value of the latter company. According to sources, the proposed deal involved Blackstone receiving an additional 0.7 to 1% stake in Byju’s. In comparison, upon completing the swap, Aakash’s promoters would have obtained 1.5 to 2 per cent in the parent company, Think and Learn.
Implications and Strategies Moving Forward
A report by Mint highlighted that the valuation of Byju’s has experienced a significant downturn over the past two years, which has led both Blackstone and Aakash’s promoters to hesitate in exchanging their shares with Think and Learn, Byju’s parent entity.
It appears that the changing market conditions and performance of Byju’s have cast doubts on the attractiveness of the share swap deal. The decline in Byju’s value might have caused apprehension among shareholders, as they would prefer to retain their stakes in Aakash, which might be perceived as a more stable investment option.
Given these circumstances, Blackstone and Aakash’s promoters will likely be reconsidering their options and assessing the potential risks and benefits of proceeding with the share swap. As the situation unfolds, further discussions and negotiations may be required to arrive at a mutually agreeable resolution.