CIE Automotive SA of Spain will buy a majority stake in the Mahindra group’s combined auto component business. In a deal announced today, the Mahindra group will, in turn, become the second largest shareholder in CIE with a 13.5 per cent stake.
The deal will be cash neutral as both companies will invest almost similar amounts in each other.
CIE to invest Rs 674 cr
Mahindra will pay Rs 740 crore for its stake in CIE, while the Spanish company will shell out Rs 674 crore for a 46 per cent stake in Mahindra Forgings, one of the listed auto component companies of the Mahindra group.
The agreement will see the formation of a global automotive component supply network with combined annual sales of about Rs 15,000 crore, according to a press release from the Mahindra group.
As part of the transaction, CIE Automotive will acquire from Mahindra group a stake in its listed and unlisted companies operating under the Systech Automotive Component umbrella. Mahindra Systech, which is the components business arm of the Mahindra group, consists of three listed companies – Mahindra Forgings, Mahindra Ugine Steel and Mahindra Composites – and two unlisted outfits – Mahindra Hinoday Industries and Mahindra Gears.
In return, CIE will contribute its forging businesses in Spain and Lithuania and consolidate all companies under Mahindra Forgings. This company will be re-named Mahindra CIE, which will continue to be listed on the Indian exchanges. According to agency reports, the Mahindra group will hold about 20 per cent stake in Mahindra CIE while the Spanish company’s holding will be about 51 per cent.
The deal is expected to be completed in 12-14 months after getting regulatory approvals in India and other countries.
The Mahindra group will have three directors on the board of the merged entity, while CIE will appoint four directors. There will be seven independent directors too.
Mahindra will nominate Hemant Luthra, President, Mahindra Systech, and V.S. Parthasarathy, CFO, M&M, to the CIE Automotive board.
Anand Mahindra, Chairman of the Mahindra group, said the alliance would enable the auto component business to rise above competition and extend its reach to new geographies with a comprehensive product portfolio.
Anton Pradera, Chairman, CIE, said the Indian automotive market had emerged a key global production hub for small cars and would soon become the gateway to Asian markets.
Open offer
CIE will also make an open offer to the public shareholders of Mahindra Forgings and Mahindra Composites. It will offer Rs 81 a share to buy up 2.45 crore shares of Mahindra Forgings (or a 26 per cent stake) and Rs 74.70 a share to acquire up to 11.6 lakh shares of Mahindra Composites or a 34.85 per cent stake. Mahindra Forgings closed nearly 14 per cent up on the BSE on Friday at Rs 66.85, while Mahindra Composites was up by about five per cent at Rs 32.85.