Japan’s Kintetsu World Express (KWE) is to invest Rs 2,677 million (€41 million) in an expressjoint venture with Indian company Gati in a deal announced today.
Gati said it will transfer its core express distribution and supply chain business into a jointventure in which it will own 70% and which will be consolidated into its results. KWE will acquire30% of the JV, to be called ‘Gati-Kintetsu Express’ for Rs 2,677 million, with the proceeds beingmostly used to reduce debt. The new venture is scheduled to launch in April 2012.
Explaining the background to the deal, Gati said that it had been exploring possibilities forsome time now to create more value for its shareholders, to strengthen its leadership position inIndia and establish a global presence. Observers noted that the deal means KWE can invest in Gati’smost profitable business without having to buy into the parent company or potentially make atakeover bid. Gati’s stock price, which has risen sharply in recent weeks due to takeoverspeculation, dropped 10% on the news.
Express and supply chain activities represent the core business of Gati, which had grouprevenues of Rs 12.1 billion (€183 million) and EBITDA of Rs 989 million (€15 million) in the yearending June 30, 2011. Gati Express Distribution had revenues of Rs 8.14 billion (€123 million) andoperating profits of Rs 810 million (€12.3 million). Revenues of the newly established supply chainunit, Gati Red Sun, were not disclosed. The company’s other two main businesses are GatiInternational and Gati Ships, a small ocean shipping business.
In comparison, KWE, an international freight forwarding and logistics provider, generatedrevenues of $3.5 billion and net profits of $103 million in its last financial year.
“The proposed Joint Venture will combine Gati’s expertise in 3PL and express distributionin India with KWE’s freight forwarding expertise and global customer base. The joint venturecompany will support the large customer base of KWE who have operations in India, simultaneouslystrengthening KWE’s distribution capabilities into the Indian market. Together, KWE and Gati willpartner in supporting the business expansion of domestic and international customers in the Indianmarket. The JV company shall also invest in high end 3PL facilities, including temperaturecontrolled warehouses,” Gati announced.
Mahendra Agarwal, Founder and CEO of Gati Ltd, declared: “We take pride in associating ourselveswith KWE, one of the world’s leading logistics solutions providers. The partnership will help usleverage KWE’s global customer base, develop world class infrastructure capabilities, enhance ourdistribution services and further strengthen our leadership position in India. This partnershipapart from providing value for the JV partners will greatly enhance value for Gati shareholders.”& amp; amp; lt; /p>
Satoshi Ishizaki, CEO of KWE, added: “Gati represents the best in express delivery services inIndia and KWE is proud to be partnered with such an excellent company. The partnership with Gatiwill enable KWE to further expand and strengthen its global operations, with the Indian marketincreasingly growing in size and importance.”
KPMG Corporate Finance was the exclusive financial advisor to Gati Limited. The Indian companyhas some 3,500 employees and operates a fleet of over 4,000 vehicles for nationwide delivery acrossthe country.
