Mahindra & Mahindra Ltd., India's top tractor maker, said it will buy 43.3 percent of Punjab Tractors Ltd. in a deal that values the target firm at nearly 22 billion rupees ($500 million).
Mahindra, along with subsidiary Mahindra Holdings and Finance Ltd., will pay 360 rupees a share for a 29 percent stake held by private equity firm Actis Group and the stake held by the Burman family, subject to approvals, it said late on Thursday.
Mahindra will also make an open offer to acquire a further 20 percent of the company from shareholders of Punjab Tractors.
“The acquisition adds significantly to our core business of farm equipment,” Anand Mahindra, Mahindra's vice chairman and managing director, said in a statement.
Mahindra, also India's top utility vehicle maker and the world's fourth-largest tractor maker, has about 30 percent of the Indian tractor market, the world's largest by volume. The sector is forecast to expand quickly with the focus on rural lending.
India's second-biggest bus and truck maker, Ashok Leyland Ltd., had also bid, while a Tata group unit opted out after due diligence. Privately-owned Tractors & Farm Equipment Ltd. was also reported to have bid.
Punjab Tractors, a part of the Swaraj group, has been operating at just half its installed capacity of 60,000 tractors per annum, and has been losing market share because of a shift to more powerful tractors. It has about 10 percent of the market.
Mahindra will tap Punjab Tractors' manufacturing capacity and vendor base in north India, it said.
“Some of the models have clear opportunities in overseas markets in which M&M operates. The manufacturing capacities fit well with our future plans, and its north India vendor base will provide benefits from sourcing synergy,” said Anjanikumar Choudhari, president of Mahindra's farm equipment sector.
Kotak Investment Banking was the adviser to Mahindra, while Citigroup was the adviser to the sellers.
Source : Reuters