Mahindra & Mahindra (M&M) is selling its 14% stake held in light commercial vehicle maker Swaraj Mazda to Japan's Sumitomo for Rs 40 crore ($8.5 million). Mahindra holds the stake in Swaraj Mazda through Punjab Tractors which it acquired last year. Sumitomo already holds 39.5% in Swaraj Mazda and the deal will hike its stake to 53.52%.

Since the deal is between co-promoters and the stake being acquired is also less than 15% (above which an open offer has to be made), Sumitomo will not have to come up with another offer to buy shares from the public.

The transaction has been struck at Rs 272/share which is 33% premium to the closing price of the scrip on Tuesday. M&M indirectly held the stake through Punjab Tractors. The decision is linked to M&M's recent decision to merge Punjab Tractors with itself. M&M has a no-compete clause with US truck major International Truck & Engine Corp (ITEC)-- its JV partner in India through which it will produce commercial vehicles above 3.5 tonnes. The stake sale means now M&M will expand its LCV business through ITEC and clears the issue of shareholding in competing firms.

Other prominent shareholders of Swaraj Mazda include Actis (7.74%), CDC (9.28%) and Reliance Capital (7.89%).

Swaraj Mazda was embroiled in a controversy ever since Punjab Tractors sold 15% out of its 29% in the company to Sumitomo in 2005. Actis, which held 25% in Punjab Tractors strongly opposed the move, triggering one of its kind boardroom battle between Actis and the then managing director of Punjab Tractors, Yash Mahajan.

Actis, which also held 18% in Swaraj Mazda, opposed the move and Actis' MD Donald Peck resigned from the Punjab Tractors board. The dispute continued till it was settled in Actis' favour who joined hands with the Burmans of Dabur to garner support to oust Mahajan. But Mahajan continued to be the company's MD with Sumitomo's backing which had triggered another court battle with PTL filing a case against Sumitomo and Mahajan at the Company Law Board.

In May 2007, M&M had announced a deal to acquire 43.3% stake in Punjab Tractors Ltd. at a price of Rs. 360 per share. M&M along with its subsidiary Mahindra Holdings and Finance had agreed to acquire the stake from Actis Group and the investment companies of the Burman family.

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