Mahindra & Mahindra (M&M), the leading utility vehicle (UV) manufacturer, has emerged as the preferred bidder for the acquisition of a majority stake in debt-ridden South Korean sports utility vehicle (SUV) maker Ssangyong Motor Company (SMC) after a three-month-long bidding process. The preferred bidder status would require M&M to enter into a memorandum of understanding (MoU) with SMC, followed by a detailed due diligence process.
M&M said it would sign the MoU with Ssangyong in the next two weeks, followed by due diligence in September and a definitive agreement by November. The bid price is to be announced when the MoU is signed. According to Bharat Doshi, Executive Director and Group CFO, M&M, the bid amount will retire most of Ssangyong's long-term debt of $640 million. “So we get a debt-free company.” SMC has reported operating profit in the two quarters this year.
On financing the acquisition, Mr. Doshi said “We have Rs. 2,500 crore surplus on our books. We have a debt-equity ratio of 0.31:1. Assuming our FCCB conversion goes through, debt-equity will come to 0.22:1. So we can raise funds, use the surplus or generate internally. We could even divest stake in group companies to raise funds.”
When concluded, the acquisition would make M&M and SMC a major force in the SUV segment and it is intended that SMC will continue to function as an independent entity with Korean management and headed by a Korean CEO.
Addressing the media, Anand Mahindra, Vice-Chairman and Managing Director, M&M, said, there were good reasons for this acquisition, one of which was Ssangyong's internal capability for engine development. “They have a petrol engine under development now and we will have access to the technology.”
Pawan Goenka, President, Automotive and Farm sector, M&M, said, “If all goes through, M&M would acquire at least 51 per cent stake in Ssangyong. The combined sales of the two companies would be in excess of $4 billion, making it a very large SUV manufacturer in the world.”
Ssangyong has two manufacturing facilities in South Korea — a 1.20-lakh-units per annum vehicle assembly plant and a 1.50-lakh-units per annum engine assembly plant. SMC portfolio includes two large-sized sedans, four SUVs and one multipurpose vehicle (MPV). These would eventually be made available in India but “we have to do a (completely knocked down) CKD route and will have an assembly line here,” said Mr. Goenka. “We have yet to decide which products to bring first. It could be the Korando and Rexton 4x4 SUV. The strategy is to have products in the Rs. 11-lakh-plus range since our own products extend only up to that.”
Ruia group has other acquisition targets
Indrani Dutta writes from Kolkata:
Pushed to the second slot in the race for the takeover of ailing South Korean automobile company Ssangyong Motor, Chairman of the Ruia Group of companies, Pawan Kumar Ruia, has said that the group has other acquisition targets on its scanner in the automobile and ancillary industries space and will go ahead in its pursuit.
