Aakash’s minority stakeholders say no to Byju’s shares

Chaudhry and Blackstone collectively own 30% of AESL, while parent Think & Learn owns 43%, and the latter’s founder Byju Raveendran owns 27%. Byju’s acquired Aakash in April 2021 for approximately $950 million in cash and stocks. The agreement then valued Think & Learn at $11 billion to benchmark the future equity swap.

Around 70% of the deal was made in cash, and the rest was meant to be adjusted against the equity of Think & Learn.

According to multiple people familiar with the development, both Blackstone and the Chaudhry family have written to Byju’s in the last few weeks, declining to comply with a Byju’s notice sent in March to execute the share swap as per the original agreement. They have cited clauses in the original share purchase agreement for doing so. An executive close to the development, on the condition of anonymity, said the agreement was fully enforceable and the share swap was not conditional.

A spokesperson for Blackstone declined to comment. Byju’s and the Chaudhry family did not respond to a query seeking comment.

While it’s unclear what direction the impasse might take, the development adds to the litany of woes plaguing Byju’s, whose founders had been talking up their ownership in Aakash as the leverage that could unlock liquidity through a potential initial public offering (IPO) in mid-2024.

For Blackstone and Chaudhry, the equity swap and ownership in Byju’s now might be a very different prospect from what it was in 2021 when a deal announcement from Byju’s said both entities would become shareholders in Byju’s.

The deal was not only struck in the heady days of easy money policies in the West that buoyed startup valuations in India and birthed unicorns at record rates but it was also done when Byju’s was itself valued at $22 billion, with talk in the air of a future US listing at a heady $40 billion valuation.

In May, Blackrock’s filings valued Byju’s at $8.4 billion. In June, Prosus wrote down the value of its holding in the edtech firm, implying a valuation of $5.1 billion. Besides, Byju’s is buffeted by demands from lenders, board resignations by marquee investors, auditor resignation, delayed filing of financial statements and scrutiny by state agencies.

Aakash is understood to be independently cash-flow positive, unlike the parent. In a press statement on 31 March, the company said it saw a three-fold jump in revenues after it was acquired by Byju’s.

While the deal announcement in 2021 cast it as a strategic merger, the plans appeared to change subsequently as Byju’s founders started talking about a separate IPO for Aakash. Part of the reason why the share swap was not executed immediately after the deal was said to be the delays in securing merger approvals from the National Company Law Tribunal at the time.

According to the original agreement, Blackstone was expected to receive around 0.75% to 1% stake in the parent entity, and the Chaudhry family were to receive around 1.5% to 2% stake in the parent entity in exchange for their equity stakes in Aakash. This would have been benchmarked against Byju’s $11 billion valuation then.

Byju’s has previously touted Aakash as one of its best acquisitions to date, and this latest tiff with Aakash shareholders comes at a time when it is separately making efforts to repay lender Davidson Kempner.

“Governance in the parent entity was the key reason," one of the people cited above said, speaking about what reasons were cited by the Aakash shareholders for declining the share swap.

“The Chaudhrys cited the delay in the filing of FY22 financial statements, the defaults with the US lenders and other probes as the reason for not picking up a stake in Think & Learn," the person added.

“The contractual terms relating to the swap arrangement will need to be examined. If the former promoters and Blackstone do not wish to go ahead with the swap transaction, they can allege a breach of contract by Byju’s, which in turn excuses their performance of the contract. On Byju’s part, it can sue the other parties for specific performance of the contract," said Sudip Mahapatra, a partner at law firm S&R Associates.

What complicates the situation further is that Davidson Kempner, which had lent $250 million (about Rs2,000 crore) in May to Byju’s against its Aakash shareholding, has declared the loan to be in default within weeks of extending the facility, a person familiar with the development said. Davidson Kempner declined to comment.

Raveendran is also understood to have offered part of his 27% equity in Aakash as collateral for the loan, of which the company has only availed Rs800 crore. Another person who spoke on the condition of anonymity and is sympathetic to Raveendran said the lender has not responded to Raveendran’s offer to repay the availed amount in full and has demanded interest payment on the entire ₹2,000 crore sanctioned amount.

“The terms of that facility are pretty rough. Some of these guys are taking advantage of our entrepreneurs who are facing tough times," he said.

Signs that Byju’s had soured in David Kempner’s eyes as a borrower was evident in June, when Mint reported that the lender had held back Rs1,200 crore even as Byju’s was negotiating with its Term Loan B lenders to avoid an accelerated demand on its $1.2 billion loan. The acceleration of a loan in the parent entity takes precedence over a debt in subsidiary units.

The Morning Context reported on Monday that a clutch of investors led by Manipal Healthcare Enterprises founder Ranjan Pai was in talks to put in Rs500 crore to Rs700 crore in AESL as part of a larger transaction. Pai declined to comment.

Should the deal fructify, a part of these proceeds will be used to pay back the money drawn from the loan amount secured from Davidson Kempner, two people cited above said.