Godrej Pillsbury is a 49:51 joint venture between the Godrej group and Selviac Nederland BV. Of the 49 per cent stake held by the group, Godrej Soaps holds 20 per cent, while 29 per cent is held by Godrej Foods.

Godrej Foods is selling its 29 per cent stake in the venture to Godrej & Boyce for Rs 31.13 crore. As per a company press release, the proceeds will be used by Godrej Foods to retire its high cost debt and reduce the interest burden. Godrej Soaps will continue to hold 20 per cent in the JV.

Godrej Foods has been reeling under losses for the last one year and is striving to bounce back in the black. The company posted a net loss of Rs 10.8 crore in 1998-99. Turnover during the period stood at Rs 459.69 crore.

The joint venture with Pillsbury, which was entered into four years back, had acrucial distribution arrangement between Pillsbury and Godrej Foods. This arrangement would remain unchanged and Godrej Pillsbury will continue to distribute the products of Godrej Foods.

Similarly, the non-compete arrangement between the two companies will also continue. Thus, Godrej Foods will not get into those food segments in which Pillsbury is present in India, such as branded wheat and cake.

In addition to the divestment decision, which is based on a valuation advisory report by a firm of chartered accountants, Godrej Foods is undertaking a rights issue in the ratio of 3:4 at a premium between Rs 5 and Rs 8 per share for a total amount of around Rs 18 crore. This is expected to increase the company's equity base and reduce its debt further.

The company had appointed management consultants Andersen Consulting to draw out a restructuring plan which is expected to result in a cost saving of up to Rs 10-12 crore. Andersen Consulting is advising the company on enhancement of operational efficienciesat its vegetable oils and processed foods division.

The company's plan of infusing equity of up to Rs 50 crore was aimed at reducing the interest cost burden and borrowings. Of this, Rs 18 crore is coming by way of rights issue, and the balance by the sale of its stake in Godrej Pillsbury. The company's paid-up capital is Rs 16 crore, while its borrowings stand at Rs 120 crore. The interest cost works out to Rs 19.37 crore. Interest cost for 1998-99, is twice the level of interest during the previous year.

Announcing the financial restructuring programme, Godrej Foods managing director Sudhir Awasthi said: "We are committed to growth and profitability. With this financial restructuring, we would be able to improve the company's performance and maximise returns to our shareholders. We are also undertaking major cost cutting measures across our operations."

Godrej Foods plans to come back in venture

Godrej Foods plans to come back as a joint venture partner in Godrej Pillsbury in the next twoyears after it jumps back into the black, Godrej Foods managing director Sudhir Awasthi told The Financial Express.

According to Awasthi, the transfer of its stake in Godrej Pillsbury to group company Godrej & Boyce Manufacturing Company, is an internal open arrangement and can be reversed back when needed.

"We hope to come out of the red by next year and after we are able to stand on our two strong feet, we will buy back the stake from Godrej & Boyce to come back as active partners in Godrej Pillsbury," said Awasthi.

Though Godrej Foods and Pillsbury share product category synergy in foods, Godrej & Boyce does not have any presence in foods.

Godrej Foods is a major player in the Indian edible oil and processed foods market with brands such as Cooklite, Jumpin, Xs and Refresh.