CCI Greenlights Titan’s Acquisition Of An Additional 27% Stake In CaratLane

SUMMARY

In August, Titan signed a share purchase agreement to acquire an additional 27.18% shareholding in CaratLane for a sum of INR 4,621 Cr

Under the proposed deal, Tata-backed Titan will acquire CaratLane’s remaining stake from cofounder Mithun Sacheti, his brother Siddhartha Sacheti, and father Padamchand Sacheti

Following the announcement of the deal, the startup elevated cofounder and COO Avnish Anand as the new CEO and even challenged a precious show cause notice issued by the ED

The Competition Commission of India (CCI) has approved Tata-backed Titan’s proposal to acquire an additional 27.18% stake in jewellery startup CaratLane.

“CCI approves acquisition of additional shareholding in Caratlane by Titan. The proposed combination relates to the acquisition by Titan of 27.18% share capital of CaratLane, on a fully diluted basis, from Mithun Padam Sacheti, Siddhartha Padam Sacheti, and Padamchand Sacheti,” the competition watchdog said in a statement.

With this, all decks have been cleared for the deal announced earlier this year. In August, Titan said it has signed a share purchase agreement to acquire an additional shareholding in CaratLane for a sum of INR 4,621 Cr.

The transaction pegged the startup at a valuation of a massive INR 17,000 Cr ($2 Bn). Back then, Titan said it would acquire 91.9 Lakh equity shares from a ‘founder’ of CaratLane and that the deal would be financed through a combination of cash balances, internal accruals and debt.

Titan had first picked up a majority stake in the jewellery brand at a valuation of nearly $69 Mn in 2016.

With the deal in the clear now, employees are now bracing for a windfall as they are expected to receive INR 340 Cr to INR 380 Cr from ESOP buyback by Titan, which aims to acquire 100% stake in the startup.

Founded in 2008 by Sacheti and Srinivasa Gopalan, CaratLane is an omnichannel startup that manufactures and sells jewellery items in India and the US. It reported a total income of INR 2,177 Cr in the financial year 2022-23 (FY23), up 71% from INR 1,267 Cr in FY22.

Following the announcement of the deal, CaratLane has seen a major leadership change with cofounder and chief operating officer (COO) Avnish Anand being elevated as the ecommerce platform’s CEO in August. This came days after his ex-boss and cofounder Sacheti exited CaratLane.

However, the deal has also been fraught with its own set of challenges. Right after the transaction was made public, the startup challenged a previous show-cause notice (SCN) issued by the Enforcement Directorate (ED) which alleged that CaratLane violated FEMA rules between 2011 and 2014 by receiving foreign direct investment (FDI).

The SCN, served in March 2022, centred around the fact that FDI was prohibited in multi-brand retail companies till 2011. However, Tiger Global is said to have invested in the startup in 2011 and even participated in subsequent rounds over the course of the next three years.

Subsequently, FDI was introduced to multi-brand retail companies in September 2012 but with the caveat that it would be undertaken with the prior approval of the erstwhile Foreign Investment Promotion Board (FIPB) and subject to conditions.

While the case is still pending before an adjudicating authority, CaratLane is said to have sought legal help from a former Chief Justice of India (CJI), who reportedly opined that it was not in violation of FEMA since the regulation applied to the B2B sector and not retail trade.

Meanwhile, CaratLane will now become the latest startup in which the Tata Group has nearly complete control. The group also counts startups like 1mg and BigBasket in its portfolio.