Both will consolidate the automotive component business

In a significant development for the Indian automotive components sector, the diversified automotive major Mahindra & Mahindra (M&M), on Saturday, entered into a global alliance with Spain-based CIE Automotive for its automotive components business.

The multi-layered deal will see M&M take a 13.5 per cent stake in CIE Automotive for around 96.24 million euro (about Rs.740 crore) which will make it the second largest shareholder in CIE.

Mahindra CIE will have a combined sales of around Rs.15,000 crore ($3 billion) with operations spanning the Americas, Europe, and Asia.

Under the agreement, CIE, through its Brazilian-listed subsidiary, Autometal, will invest in the component businesses of M&M’s Systech Sector.

These include listed companies Mahindra Forgings, Mahindra Ugine Steel and Mahindra Composites and unlisted Mahindra Hinoday and Mahindra Gears.

CIE will contribute its forging businesses in Spain and Lithuania and consolidate all companies under Mahindra Forgings, which will be rechristened Mahindra CIE and continue to be listed on the BSE and NSE.

Complex deal

M&M will sell stakes in three group companies for Rs.674 crore to CIE’s group company and open offers will follow.

Addressing a press conference, Anand Mahindra, Chairman, M&M, said, “It is a very interesting and complex deal in structure and sequence. This is the first time that we have ceded management control. But in one fell swoop, we consolidated our entities and created a global entity by this alliance.”

CIE will invest around $100 million to buy shares and about $10-15 million in the open offer while M&M will invest roughly the same for the stake in CIE.

Also, M&M will have a 20 per cent plus stake in Mahindra CIE, depending on the response to the open offer.

The board of Mahindra CIE will have three nominees from M&M, four from CIE and seven independent directors.

For its stake in CIE, M&M’s Hemant Luthra, President, M&M’s Systech sector, and V. S. Parthasarathy, CIO, M&M, will be inducted on the CIE board. Mr. Luthra will be the Chairman of Mahindra CIE.

The entire transaction is expected to be completed in 12-14 months, and regulatory approvals could take about two months.

Anton Pradera, Chairman, CIE Automotive, said, “Mahindra CIE will be one of the most important companies in our forging activity. Our footprint in Europe and India will be significant, and we aim in future to expand to the Americas and China. We will use India as a hub for our Asian business”.

Mr. Luthra said, “We have been in talks for the last two-and-a-half years. There is great complementarity in this alliance, and there can be further synergies going forward. There are no royalty payments and the deal is broadly cash neutral”.

According to Mr. Pradera, the forging business could go up to 500,000 tonnes per annum for Mahindra CIE. “We can be a global leader in crankshafts. The priority is to grow in India and to grow in the region around India. We are exploring Thailand and Indonesia”.


M&M open to more buys November 21, 2012

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