"We might back out from buying 34 per cent of the stake in the Canadian company unless it turns around within the next 18 months," a top company official told the media.
i-flex had recently signed an agreement with Castek that allows it to buy upto 34 per cent of its stake. "The turnaround of Castek is directly dependent on two pending contract negotiations with two US-based large insurance companies. If Castek wins those contracts, which are under progress, the company will come out of the crisis," the official added. i-flex officials said the valuation of Castek would jump manifold if it gets the insurance deals.
"The option is similar to exchange traded derivative instrument-options. We paid a premium to get the right to buy upto 34 per cent over the next 18 months but are not obligated to exercise the option," the official said. i-flex, in its bid to enter the insurance sector, wanted to seal a deal without involving itself with any significant risk by buying the shares upfront.
Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.