The Mahindra Group is joining hands with Spanish auto parts supplier CIE Automotive SA to form a global automotive components supply network with annual revenues of around $3 billion and operations in North America, South America, Europe and Asia. The businesses will be held through listed businesses in Spain, Brazil and India.
As per the deal, the Mahindra Group is bringing all components businesses (both listed and unlisted) housed under its Systech Automotive Component unit, under the existing listed firm Mahindra Forgings.
This means bringing together three listed companies (Mahindra Forgings, Mahindra Ugine Steel and Mahindra Composites) and two unlisted outfits (Mahindra Hinoday Industries and Mahindra Gears) under one firm. This entity will then be renamed as Mahindra CIE, in which CIE Automotive will hold a majority stake.
In a nutshell, the deal will involve CIE paying around $117 million to M&M to buy stake in various components businesses, which will be brought under Mahindra CIE, and M&M picking up a small stake in CIE for $128 million to create a global components group.
“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,” said Anand Mahindra, chairman of the Mahindra Group.
“CIE’s leadership and shareholders have a strategy to develop India as the gateway to the Asian market. In Mahindra, we found a partner that has a multi-technology portfolio similar to ours and shares the same business values,” commented Anton Pradaera, chairman of CIE Automotive.
CIE Automotive is one of the main suppliers of components and sub-components for the automobile sector operating in Europe, Brazil, North America and China with sales of $2.2 billion.
Kotak Investment Bank acted as financial advisor, and Khaitan & Co and DLA Piper were legal advisors to the Mahindra Group. GBP Legal and Amarchand Mangaldas were legal advisors to the CIE Group.
CIE Automotive is buying 52.65 per cent of Mahindra Forgings from Mahindra & Mahindra (M&M) for Rs 393 crore. It will also buy 64.96 per cent of Mahindra Hinoday Industries, a subsidiary of M&M, for an aggregate consideration of Rs 268.95 crore and 35.3 per cent of Mahindra Composites (from M&M and its subsidiary Mahindra Holdings) for Rs 11.6 crore. This means it will pay at least Rs 674 crore ($117 million) to M&M or its arm, to pick up 51 per cent stake in Mahindra CIE.
This will be parallel to a merger of Mahindra Hinoday, Mahindra Ugine Steel, Mahindra Gears, Mahindra Investments and CIE’s European forgings business (Spain and Lithuania), which are under Participaciones Internacionales Autometal Tres S.L., with Mahindra Forgings, with an appointed date of October 1, 2013.
As per the joint valuation report by N. M. Raiji & Co., Chartered Accountants, and S. R. Batliboi & Co. LLP, and the fairness report issued by ICICI Securities, Mahindra Forgings will issue 110 shares for every 100 shares held by the shareholders of Mahindra Hinoday; 17 shares for every 100 shares of Mahindra Investments; 20 shares for every 100 shares of Mahindra Gears; 284 shares for every 100 shares of Mahindra Ugine Steel; 105 shares for every 100 shares held by the shareholders of Participaciones Internacionales Autometal Tres, S.L., and 90 shares for every 100 shares of Mahindra Composites.
CIE has also made an open offer for picking up another 26 per cent of Mahindra Forgings, which may cost up to Rs 198.45 crore (if fully successful), taking its total deal value to Rs 872 crore.
Simultaneously, M&M is ploughing Rs 740 crore ($128 million) to buy 13.5 per cent stake in CIE Automotive, making it the second-largest stakeholder in CIE. It will also nominate two board members as part of the stake purchase. CIE’s operations in Brazil, Mexico, the USA and China are constituted under its subsidiary, Autometal, listed on the Sao Paolo stock exchange, while CIE Automotive is listed in Spain.
AIM-listed and India-focused PE firm Elephant Capital is an investor in Mahindra Forgings, holding around 3 per cent stake it picked up for £4.8 million in 2007.
(Edited by Sanghamitra Mandal)