Varroc Engineering management clarifies on the cut in the value of its lighting business sale

Varroc Engineering's management on Monday said that the focus was to save and conclude the sale of its four-wheeler lighting business, even if it meant selling it at a lower price.

Speaking on a conference call, the management attributed the decline in deal value to the current economic scenario and that M&A activity across the globe is down by as much as 50-60 percent compared to last year.

As part of the revised deal with France's Plastic Omnium SE, the company will receive 520 million euros instead of the earlier consideration of 600 million euros. Varroc's lighting business contributed 54 percent to the company's overall topline.

Varroc divested its lighting systems operations in the US, Brazil, Mexico, Poland, and four other countries. The deal would also allow Plastic Omnium to acquire Varroc's global R&D operations in India.

As part of the earlier deal, post closure of the transaction, Varroc would receive a post-tax consideration of 160-175 million euros, subject to closing adjustments. An escrow amount of 35 million euros was supposed to be released over 2-3 years.

However, Valeo Vision S.A., a competitor company, filed a lawsuit with German courts, asserting the infringement of the German parts of certain European patents. The lawsuits aimed at obtaining an injunction regarding the lighting products and disclosures regarding past sales.

As part of its settlement, Varroc will pay a compensation of 51.1 million euros to Valeo.

Based on the revised share purchase agreement, the total purchase price has come down to 520 million euros from the earlier 600 million euros.

The net cash accretion, post-tax, will now be down to 5-9 million euros. The company has also cited lower demand caused by the war in Ukraine and other geopolitical issues, which weakened the financial outlook of the business, as some of the other reasons behind the reduction in the deal valuation.

Post the deal closure, Varroc will still have debt worth Rs 1,300 crore on its books.

Varroc Engineering has also shared some business updates in its investor presentation. Here are some key takeaways:

August and September witnessed the highest-ever revenue for Indian operations

Have added three new customers in the last six months in the EV segment

Strong order wins to drive future growth

Aftermarket business continues to grow at 20 percent

Shares of Varroc Engineering are down 7.8 percent to Rs 312 as of 12:20 pm.