In a move aimed at expanding its global footprint as also diversifying its product range, Mahindra & Mahindra (M&M) signed definitive agreements with Japanese conglomerate Mitsubishi Heavy Industries to acquire a 33.33 per cent stake in group company Mitsubishi Agricultural Machinery (MAM).
Mahindra will invest $25 million (3 billion Japanese yen) in the company through fresh issue of common shares and Class A (non-voting) shares of MAM. The funds are to be used to increase MAM’s capital base, and the deal is likely to close by October 2015. Dr. Pawan Goenka, Executive Director of M&M, told a press conference that Mahindras would get four positions on the MAM board.
MAM (revenue of around $400 million in 2014-15) makes tractors, combine harvesters, rice transplanters and other agri-machinery. M&M has had a decade-long association with Mitsubishi in the U.S., where it has been supplying 6,000 OEM tractors to Mahindra USA.
“With this alliance, we will focus on making aggressive investments in marketing and product development and becoming a significant player in the global agri-machinery industry,” Mr. Goenka said. “The new partnership will help both companies to jointly develop products to address global opportunities in the tractor and agri-machinery space,” he added.
Out of the 1.7 million tractors sold world-wide in 2014, 70 per cent was sold in North America, China and India. M&M is the world’s largest tractor manufacturer by volume, and has a strong leadership position in India. “The primary purpose of the acquisition is not the Indian market. There are huge opportunities in China and the U.S. beyond what we are already doing and the ASEAN countries where we have no presence,” Mr. Goenka said, adding that ‘reciprocal’ product arrangements were being worked out where M&M would take MAM’s products to the U.S. and M&M’s products could be sold in Thailand, Malaysia and Indonesia.
Tractor makers have been facing pressure on sales, and the unseasonal showers across India compounded matters. “But the signs are good for a reasonably good monsoon, and we are hopeful of a pick-up in tractor sales in the third quarter of this fiscal,’’ he said.
