Panatone Finvest backs Tejas Networks in Rs 4,078-cr deal

Tata Sons subsidiary Panatone Finvest made a strategic investment in Tejas Networks, an optical networking products company, on Thursday.

The markets reacted positively to Tejas Networks' announcement of the deal, pushing its stock up by 4.99 percent, locking it in the day's upper circuit at Rs 246 a share.

Panatone Finvest has already infused Rs 871 crore in Tejas Networks. The deal will play out in three phases across 18 months, and values Tejas Networks at Rs 4,078 crore.

“We look forward to working with the highly experienced management team of Tejas Networks, and creating a full stack of globally competitive wireline and wireless products,” said Saurabh Agrawal, Executive Director of Tata Sons, in a press release.

The first phase of the transaction with Panatone Finvest has involved a preferential allotment of over 19.37 million shares by Tejas Networks for Rs 258 a share. Panatone Finvest has also bought 1.3 million shares from key managers of Tejas Networks, for Rs 33.5 crore at Rs 258 a share.

So, Panatone Finvest has 13.3 percent of Tejas Networks for Rs 533.5 crore, apart from which it has infused another Rs 337.5 crore towards warrants that will get issued in the second and third phases of the deal.

In the second phase, Tejas Networks will issue 36.8 million series A warrants for Rs 950 crore. These warrants will get converted into the same number of equity shares at an exercise price of Rs 258 a share within 11 months of issue. This will then give Pantone Finvest another 23.8 percent in Tejas Networks.

In the third phase, Tejas Networks will issue 15.5 million series B warrants for Rs 400 crore, which will get converted into equal number of equity shares at an exercise price of Rs 258 a share between 12 and 18 months from the warrants' issue. This will give the Tata Sons subsidiary another 9.1 percent in Tejas Networks.

In effect, Pantone Finvest will have 46.2 percent of Tejas Networks for Rs 1,884 crore. The deal pegs Tejas’ enterprise value at nearly Rs 4,078 crore–a whopping 77 percent higher than its latest market capitalisation of Rs 2,302 crore on the Bombay Stock Exchange.

In compliance with SEBI's takeover regulations, Panatone Finvest will make an open offer to Tejas Networks' public shareholders for up to 40.25 million (up to 26 percent) of its outstanding shares. At Rs 258 a share, the open offer would entail a cost of up to Rs 1,038 crore for Panatone.

In the stock exchange filing, Tejas Networks said it sees large opportunities in the domestic as well as global telecom sector “with the new cycle of investments in 5G and fiber-based broadband rollouts.”

The proceeds from the preferential allotment will be utilised by Tejas Networks to invest organically and inorganically in the R&D, sales and marketing, people, infrastructure and to enhance its manufacturing and operational capabilities to cater to the large market opportunity, according to the stock exchange filing.

Sanjay Nayak, CEO and Managing Director of Tejas Networks, will continue to lead the company with the existing management team. The Tata association will enable Tejas Networks to address the large market opportunity and build a financially-strong global company, he said.

“I am fully committed to making this a success and am excited about the next phase of our journey,” Nayak said.