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    Rewind 2019: The death of VG Siddhartha and what went wrong with Cafe Coffee Day

    business | IST

    Rewind 2019: The death of VG Siddhartha and what went wrong with Cafe Coffee Day

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    The shocks that rippled across India in 2019 were not only from the economic and political spectrum. July saw the Indian commercial world shaken by the suicide of VG Siddhartha - the man who made coffee shops a mainstay of the Indian psyche when he introduced the Cafe Coffee Day (CCD) chain. CNBC-TV18's Mugdha Variyar recalls the events that led up to the tragedy that left India Inc rattled, and his empire floundering.

    The shocks that rippled across India in 2019 were not only from the economic and political spectrum. July saw the Indian commercial world shaken by the suicide of VG Siddhartha, the man who made coffee shops a mainstay of the Indian psyche when he introduced the Cafe Coffee Day (CCD) chain.
    CNBC-TV18 recalls the events that led up to the tragedy that left India Inc rattled, and his empire floundering.
    The usually languid Netravati River near Mangalore became the hub of action on the evening of July 29. At around 6:30 pm, Siddhartha, the founder of the popular coffee chain Cafe Coffee Day, stepped out of his car and disappeared.
    A frantic search and rescue operation was launched and on July 31, his body was recovered from the river. Police suspected suicide and these suspicions were strengthened by the emergence of what appeared to be a suicide note.
    The note was in the form of a letter to the board of directors of Coffee Day Enterprises and the Coffee Day family.
    "I have failed to create the right profitable business model despite my best efforts. I fought for a long time but today I gave up as I could not take any more pressure from one of the private equity partners forcing me to buy back shares, a transaction I had partially completed six months ago by borrowing a large sum of money from a friend.”
    Financial woes
    The letter brought Siddhartha's troubles into sharper focus. It was already clear at the start of the year that the Coffee Day Group was in poor shape. Siddhartha had reportedly been holding frenzied discussions with multiple players to liquidate various investments, starting with his stake in Mindtree. His decision to offload the 20.4 percent stake he and the CCD group held in Mindtree to Larsen and Toubro (L&T) for Rs 3,200 crore culminated in the first hostile takeover of an IT company in India, but was by no means smooth. He had to grapple with an IT order attaching a portion of the shares over a potential tax demand.
    Siddhartha mentioned this episode in his letter, saying this harassment "was very unfair and has led to a serious liquidity crunch."
    This led the IT department to question the authenticity of this letter and deny any such harassment.
    But in March, the Coffee Day group had to ask the IT department to attach shares of Coffee Day and release the Mindtree shares and the sale went through. But the Rs 3,200 crore Siddhartha raised from L&T was not enough. He moved on to active discussions to sell part of the coffee business and a 100-acre tech park in Bengaluru owned by Coffee Day Group's subsidiary Tanglin.
    But by then, as Siddhartha wrote in his purported letter to the board, he felt he had "failed as an entrepreneur."
    Siddhartha's death sparked an outpouring of shock from industry and a heated debate in political circles.
    The shock of Siddhartha's death was intensified when it came to light that his purported letter to the board also included a detailed list of assets that valued all of Coffee Day group's businesses at close to Rs 17,000 crore - more than the group's debt burden, which was later pegged at Rs 4,970 crore.
    This list included Tanglin's properties worth Rs 4,000 crore, Rs 1,000 crore worth of stake in Sical, 12,000 acres of coffee plantations worth over Rs 2,000 crore carrying timber worth an additional Rs 1,000-1,300 crore.
    Crucial board decisions
    In the aftermath of Siddhartha's death, Coffee Day Enterprises had to take some crucial decisions. The board started by appointing SV Ranganath as interim chairman and said it would investigate the contents of the purported suicide letter.
    Apart from quantifying total debt obligations, the board moved quickly to finalise the sale of the 100-acre Global Village Tech Park to Blackstone for Rs 2,700 crore. This deal, however, is waiting for approval from the group's lenders.
    It has also signed close to 30 NDAs with parties interested in buying its coffee business. This includes names like OYO, TPG, Bain and KKR.
    Meanwhile, the group has shut down CCD outlets across the country. Close to 500 CCD outlets have been shut since April this year to cut costs and today, only around 1,200 -1300 outlets are operational.
    Business-wise, Coffee Day Enterprises was already struggling. Revenues from its coffee retail business were down one percent in the first quarter. Its earnings were down 10 percent and it posted a loss of Rs 61 crore.
    The Coffee Day Group has had to delay the release of its second-quarter numbers due to investigations into the accounts of the company and its subsidiaries.
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