Auto component company Varroc Engineering on Friday said they have lowered the sale price of its four-wheeler lighting business from €600 million to €520 million, taking into consideration the current recessionary trends in Europe. Varroc had in April 2022 announced the divestment of its four-wheeler lighting business in the Americas and Europe, along with the global R&D operations in India, to Plastic Omnium Se, France for €600 million.
Plastic Omnium announced on Friday that it had completed the acquisition of Varroc’s automotive lighting systems and the transaction of €520 million was adjusted downwards by €80 million to reflect weakened market conditions, triggered by inflation and supply chain disruptions. The Varroc lighting business was being consolidated into Plastic Omnium’s accounts and integrated into their new lighting division as of October 7, the French company said.
According to Varroc’s presentation to investors, the enterprise value had to be amended to take care of buyers’ concerns. Among the reasons for the lower enterprise value were higher raw material inflation, lower demand caused by the Ukraine war, and other geopolitical issues that resulted in negative Ebitda for Varroc’s 4W lighting operations and weakened the financial outlook for the businesses.Varroc also entered an out-of-court settlement in an IPR infringement litigation with Valeo Vision SA.
Valeo had filed lawsuits with German courts about infringement of the German parts of some European patents. Varroc agreed to pay a compensation of €51.1 million to Valeo.Net cash accretion to Varroc India, post-tax and net of escrow, is estimated to be €5-9 million with escrow revised downwards to €28 million from €35 million, Varroc said.Varroc said it had settled the debt of €400 million as part of the plans to use the proceeds to repay high-cost debt.
Tarang Jain, MD of Varroc, had earlier told FE that between 2018 and 2020, Varroc had invested in new plants in the 4W lighting business and this was done through QIP and additional borrowings in India, resulting in high leverage. The company’s debt combined with Covid-related disruptions, semiconductor supply shortages and lower OEM demand impacted capacity utilization, margins and cash flows, Jain had said.
The transaction would strengthen Varroc’s balance sheet and enable it to focus on emerging areas such as electric vehicle components, electronics and connectivity in the Indian market and the global two-wheeler lighting business, Jain said. The Varroc stock fell by 6.80% on the BSE to Rs 315 on Friday after the company announced amendments to the agreement. The Varroc stock price had reached a high of Rs 494.60 in April ’22 when the company had announced divestment plans.