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M&M Emerges Preferred Bidder For Ssangyong Motor Company

13 August, 2010

Mahindra & Mahindra has been selected as the preferred bidder for acquiring South Korea’s troubled auto maker Ssangyong Motor Company Ltd. The Preferred Bidder status means that Mahindra & Mahindra will enter into a memorandum of understanding, followed by a confirmatory due diligence process and signing of definitive agreements thereafter. The size of the bid is not disclosed. According to a report in WSJ, other bidders included Raghav Industries (an affiliate of Ruia Group) and Daewoo Bus.

Ssangyong, operating under bankruptcy protection, plans to reach a preliminary agreement with Mahindra by the end of August and sign a contract for sale in November, it said in a statement to the Korea Exchange.

Obtaining control of Ssangyong comes after Mahindra bought Renault SA’s stake in Logan Sedan venture in April this year. The acquisition will boost Mahindra’s plans for global expansion and also provide access to Ssangyong’s SUV and small-car expertise in markets including Russia, where the South Korean company exports vehicles, Bloomberg adds.

SYMC is a Korean manufacturer of auto and aggregates 7 models under 5 brands. The 7 models include 2 large sized sedans, 4 SUV’s and 1 MPV.  It also has a manufacturing plant for gasoline and diesel engines as well as axles.  SYMC has more than 1200 dealers globally and an R&D manpower strength of around 600 people and modern R&D infrastructure for design, testing and validation.

Mahindra has been on an active acquisitive path. In May, Mahindra agreed to buy 55% stake in Reva Electric Car Co, a closely-held company based in Bangalore to gain technology for alternative-energy vehicles. A month earlier, it took over Renault’s stake in a joint venture that makes the Logan sedan in India.

Mahindra entered two-wheeler business in 2008 by purchasing assets of Pune, western India-based Kinetic Motor Co. The automaker entered the aerospace industry last year by purchasing majority stakes in Aerostaff Australia, a component manufacturer, and Gippsland Aeronautics, a maker of turboprop aircraft.

Recently, the Kolkata-based Ruia group (the other bidder) acquired the operating assets of Germany’s Gumasol-Werke Dr. Mayer GmbH & Co. KG, a specialist in elastomer technology and products. The deal includes acquisition of a manufacturing cum development facility near Frankfurt with around a 100 employees. 

Shares in Indian top utility vehicles maker Mahindra & Mahindra  fell more than 1% on Thursday after South Korea’s troubled Ssangyong Motor  named it as the preferred bidder.

REUTERS ADDS: “It is not making economic sense and that is why the stock has reacted negatively,” said Rakesh Rawal, head of private wealth management at Anand Rathi, who manages $1 billion of funds for his clients.

Ssangyong, which holds only 2% of the Korean market, is under court-led restructuring and faces a debt pile of about $634 million. It also has a history of labor disputes.

Mahindra, which makes sport utility vehicles such as its flagship Scorpio and popular Xylo, aims to be a global player in the segment. Its bid for Ssangyong came in at $400 million, sources previously told Reuters.

The acquisition could be slightly negative for Mahindra in the near term because Ssangyong is a small player and scalability is limited. So Mahindra will have to make some investments,” said Surjit Arora, auto analyst with brokerage Prabhudas Lilladher.

“I am guessing it would take two to three years for Mahindra to turn around the company. That is when we expect the benefits to kick in,” he added.

The potential deal would give Mahindra access to the so south-east Asian market, where it does not have a presence. It would also give it access to new technologies, particularly in diesel engines, which could be used for Mahindra’s existing vehicle range.

An investment banker who has been involved with the Mahindra group in the past said that while labor problems have troubled the Korean firm in the past, “Mahindra may be able to deal with it as they have a record of good industrial relations. I think they can sort it out,” he added.

Mahindra is likely to hold a press briefing later in the day to talk about the fresh development.

At 9:45 a.m. (12:15 a.m. EDT), Mahindra shares were down 0.58 percent at 624 rupees, after hitting a low of 619 rupees while the main index was down 0.55 percent. Mahindra was one of the bidders to buy cash-strapped Ssangyong, along with South Korea’s Young An and India’s Ruia Group, which was named a reserve bidder.

Ssangyoung said, the final acquisition price would be decided in October, after due diligence, and the deal would be closed in November.


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M&M Emerges Preferred Bidder For Ssangyong Motor Company

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