In a significant development for the Indian automotive components sector, diversified automotive major Mahindra & Mahindra Ltd. (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 acquiring a 13.5 percent stake in CIE Automotive for around EUR96.24 million (around Rs.740 crore) which will make it the second largest shareholder in CIE.
The agreement will see the formation of a global automotive component supply network with combined annual sales of around Rs.15,000 crore or EUR2.2 billion or $3 billion with operations in North America, South America, Europe and Asia.
As part of the transaction, CIE through one of its Brazilian-listed subsidiaries, 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.
M&M will sell stakes in three group companies for Rs.674 crore to CIE's group company and open offers will follow. CIE will invest around $100 million to acquire shares and around $10-15 million in the open offer, while M&M will invest around the same amount for the stake in CIE.
The share sale by Mahindra will trigger open-offer provisions under the Securities Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011.
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 Systech sector President Hemant Luthra and CIO V. S. Parthasarathy will be inducted on the CIE Board. Luthra will be the Chairman of Mahindra CIE.
The entire transaction is expected to be completed in 14 months, and regulatory approvals could take around two months.
Mahindra Group Chairman Anand Mahindra said, "This Grand Alliance with CIE enables us to "Rise" above competition, quickly extends our reach into new geographies, and grow our collective product portfolio in the coming years."
CIE Automotive Chairman Anton Pradera commented, "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."
At the BSE, Mahindra & Mahindra shares are currently trading at Rs.971.15, up Rs.23.70 or 2.50 percent on a volume of around 50,000 shares.
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