Mahindra-Ssangyong deal on track

Mahindra & Mahindra (M&M), India’s largest maker of sports utility vehicles (SUV), said that it has been selected the preferred bidder for the acquisition of a majority stake in South Korean SUV maker Ssangyong Motor Company (SYMC).

The Indian auto major outbid other firms, including Kolkata-based P K Ruia Group, which is the owner of Dunlop and Falcon tyres. M&M would now get into a memorandum of understanding with SYMC to do a detailed due diligence before completing the acquisition by November. The company did not disclose the amount it had bid for acquiring the controlling stake.

 

“The deal provides us with a tremendous opportunity to accelerate our progress towards becoming a globally recognised player in utility vehicles,” said Anand Mahindra, vice-chairman and managing director, Mahindra Group. “We have made the bid based on the synergies of the two companies and to create a platform for global expansion,” he said.

SYMC has SUV models like ‘Rexton’, ‘Kyron’ and ‘Actyon’ and sedan ‘Chairman’. The company has been undergoing a court-led restructuring from 2009 after suffering heavily due to the downturn in auto industry.

China’s SAIC Motor Corp owns 10 per cent in the troubled automaker and about 70 per cent is held by creditors, led by state-owned Korea Development Bank.

The company has 138 dealers in its home country, while 1,300 dealers are located across 98 nations. The company has two manufacturing facilities in South Korea and has an employee strength of 4,800 people.

“Whatever bid amount we put in the company will be used to settle the existing long term debt, and we would get a debt free company,” said Bharat Doshi, group chief financial officer, M&M. SYMC had long-term debt of $640 million as on December 31.

M&M has about Rs 2,500 crore of cash and its debt to equity is 0.31, which gives enough room to raise fund.

“In the last four to five years the company has had no significant product development that has impacted its sales; we will revive the product portfolio,” said Pawan Goenka, president, automotive and farm sector M&M.

The company also expects the combined sourcing of the two companies to bring down cost for SYMC and M&M. It also expects to bring the premium SUVs priced over Rs 11 lakh to India.

SYMC is currently selling 7,000 vehicles a month against 35,000 units sold in 2009. The company has internal capability of engine development. It made net loss of Rs 1,340 crore in 2009. But now it has turned Ebidta positive. Ebitda is the yard stick of the operational performance of a company and it stands for earnings before interest, depreciation, tax and ammortisation. M&M said it intends to make Ssangyong function as an independent entity with Korean management.

Stock of M&M gained 0.8 per cent to Rs 632 a share on Bombay Stock Exchange following the news.

Pawan K Ruia Ruia, chairman of the Ruia group said, “Since we are the second preferred bidder, the Ruia Group will only get involved in the deal if things don’t work out between Ssangyong and Mahindra.” “But we were very aggressive (on the bid),” he added. Ruia said he would be in a position to finance the deal, if the group was made the preferred bidder, subsequently to a breakdown in discussion between Mahindra and Ssangyong.