Byju’s In A Spot As Asset Sale Hangs In Limbo, Investors See Red

Just a few days ago, there was news that certain investors had called for a management and board shake-up; however, Byju responded assertively, claiming that they lack the authority to oust the current CEO.

In the aftermath, plans for the sale of assets by Byju’s, including Great Learning, have encountered obstacles due to escalating financial pressures resulting from demands from investors of term loan B (TLB) and discord with stakeholders, according to potential buyers who have been approached.

These buyers are holding off in anticipation of a reduction in the sale price.

In contrast to Epic, which is also up for sale, the process for selling Great Learning is being directly managed by its founder, Mohan Lakhamraju, in collaboration with TLB investors.

Byju’s aims to fetch approximately $600 million from the sale of this higher education asset but has yet to secure a buyer with a binding term sheet.

At the same time, there hasn’t been a binding offer received for Epic either, spotlighting the challenges faced by the Bengaluru-based startup across all fronts.

The Great Escape
The sale of Great Learning is crucial for repaying Byju’s $1.2-billion loan.

A source familiar with the proposal remarked, “I’m uncertain how many companies would be capable of mustering $600 million in cash to acquire any asset in the current market, particularly given the broader issues within the group. Delaying the sale will likely result in a tougher negotiation amidst the crises, and there are alternative options available at a lower price.”

This individual also noted that Great Learning’s revenue generation has suffered amid the cash crunch at the parent company level and expressed concerns from some universities regarding conflicts with company investors and TLB lenders worldwide.

The Problem
A cash-and-stock deal presents a significant challenge for the troubled edtech firm as lenders are reluctant to entertain such a mix as they strive to recover the loan extended to Byju’s fully.

“What would lenders do with stock? They require cash. Even for Epic, regarded as a superior asset, arranging a full-cash deal worth $400 million is no easy feat,” remarked an individual familiar with the ongoing discussions.

Byju’s had anticipated receiving a binding offer for Epic by January, but recent developments have caused delays in the transaction.

The financially strained company, also grappling with a severe cash shortage, had intended to utilize some of the proceeds from the Epic deal for day-to-day operations, but that avenue remains unavailable at present.

For over a year, the TLB lenders have been in a standoff with Byju’s, despite issuing a statement in July expressing willingness to engage in talks for loan restructuring. Since then, they have initiated insolvency proceedings both in the US and India.

Also, they have lodged the first legal challenge against Byju’s parent company, Think & Learn, in the Bengaluru civil court, as reports on February 6.

The lawsuit contested Manipal group chairman Ranjan Pai’s conversion of debt to equity in Aakash Institute, but it was dismissed by the court.

“At present, the primary focus is on concluding the rights issue, which has already witnessed a public battle between investors and the founder,” noted another individual briefed on the sale process.

Byju’s launched a rights issue on January 29, offering shares at a considerably reduced pre-money valuation of $25 million—a 99% discount to Byju’s peak valuation—in order to raise $200 million.

This move has left a group of investors, including Prosus and Peak XV Partners, discontented, as their investments face complete wipeout if they opt out.

Moreover, their attempt to remove founder and CEO Byju Raveendran and his family from operational roles was thwarted by the company, which declared in a public statement that they lack the authority to do so.

Move Out
Thus, Byju’s is currently embroiled in conflict—both with investors and the looming threat of bankruptcy.

Shareholders have demanded Byju’s board resignation, sparking controversy over calls to oust CEO Byju Raveendran and his family, who hold a significant 26% stake in the company.

However, in a media statement, the financially strained edtech firm lamented the situation, attributing the standoff to certain investors and underlining the toll it has taken on the company and its employees.

Amidst these challenges, Byju’s faced another setback as lenders of its $1.2-billion term loan B compelled subsidiary Byju’s Alpha to file for insolvency in the US.

Meanwhile, internally, Byju’s top management conveyed to staff via email that certain investors are allegedly plotting against the company, worsening a cash crisis that led to delayed January salaries.

Clarifying its stance, Byju’s asserted that the shareholder agreement does not grant investors the authority to vote on CEO or management changes.

The company defended Raveendran and his team, crediting them with steering Think & Learn (Byju’s parent) through tumultuous times following the departure of three investors from the board last year, which triggered a wider crisis.

“The preservation of business continuity is paramount, and we are committed to prioritizing this principle in all our endeavors,” the company affirmed.

Insiders familiar with the situation stated that the ongoing dispute is likely to escalate into a legal battle, with neither party showing signs of backing down.

Tensions had been simmering between Byju’s founding team and certain investors for several months before spilling into the public domain.

In a communication to employees of the cash-strapped startup, it was revealed that commitments exceeding 100% have been secured for its proposed $200-million rights issue.

Addressing the media, Think & Learn expressed openness to dialogue as its founders and leadership explore avenues to fulfill mounting obligations.

The company emphasized its lack of external funding for nearly two years, apart from the founder injecting over $1 billion, underscoring the necessity for launching a rights issue as a swift and equitable fundraising measure.

Reports suggest that late-stage investors are negotiating with the company for a share sale, which is being conducted at a significantly reduced price, valuing Byju’s at $20-25 million prior to the transaction.

Notably, entities like Prosus and Peak XV will need to inject $18 million and $14 million, respectively, to safeguard their holdings from being wiped out.

In an internal message, management expressed distress over certain investors’ demands for founder Raveendran to step down as CEO, asserting that they should have extended support during these challenging times instead of resorting to media discussions.

According to the edtech firm, the successful completion of the rights issue will furnish adequate capital for its short-term requirements starting from March.

“This process is expected to take an additional 25 days to conclude, ensuring sufficient growth capital and operational liquidity. It heralds the commencement of the final phase of our recovery journey,” the communication concluded.

The Games Continue
An investor group comprising Peak XV Partners and Prosus had earlier disclosed that they had issued a notice calling for an extraordinary general meeting (EGM) after their requests to the Think & Learn board in July and December of the preceding year were disregarded.

The group stated, “The resolutions being proposed encompass requests for addressing governance issues, financial mismanagement, and compliance concerns; restructuring the board of directors to reduce the influence of Think & Learn founders; and a change in company leadership.”

General Atlantic, Sofina, the Chan Zuckerberg Initiative, Owl Ventures, and Sand Capital are among the entities endorsing these resolutions.

The board of Think & Learn includes Raveendran, his spouse and Byju’s co-founder Divya Gokulnath, and brother Riju Ravindran. Additionally, former State Bank of India chairman Rajnish Kumar and former Infosys finance chief Mohandas Pai serve on Byju’s advisory council, established in July following the resignation of representatives from Prosus, Peak XV, and the Chan Zuckerberg Initiative from the board.

Byju’s Alpha, entangled in insolvency proceedings in the US, no longer hosts any significant operations of the edtech group; US lenders have also initiated legal action against the firm in India, dragging it to the National Company Law Tribunal.

The startup has also failed to meet deadlines for presenting audited financial statements for FY22 to investors and is under pressure to conclude the audit for FY23 within the stipulated timeframe.

The Last Bit, Troubles don’t seem to be abating for Byju’s as it finds itself embroiled in a multifaceted crisis involving conflicts with investors, governance issues, and financial challenges.

The demand for an extraordinary general meeting by an investor group spotlights the escalating tensions within the company.

Meanwhile, the departure of key investors from the board and the initiation of insolvency proceedings against Byju’s Alpha in the US add to its woes.

With missed financial deadlines and ongoing legal battles, Byju’s faces an uphill battle to restore stability and regain investor confidence amidst a rough operating environment.