M&M to buy 13.5% in Spain’s CIE Automotive
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Mahindra group and Spain's CIE Automotive have signed a global alliance agreement in the automotive component business, creating a Rs 15,000 crore ($3 billion) supply behemoth with operations across the world.
As part of the deal, CIE Automotive, a $2.2 billion company, will acquire Mahindra group's stake in its Systech business — three listed (Mahindra Forgings, Mahindra Ugine Steel Co, Mahindra Composites) and two unlisted companies (Mahindra Hinoday Industries and Mahindra Gears) — for over $100 million. The Spanish firm will then contribute its forging business in Spain and Lithuania and together consolidate all companies under Mahindra Forgings which will be rechristened Mahindra CIE.
This is first instance in which the Mahindra group is giving up majority control in a group company.
Simultaneously, Mahindra group will acquire 13.5 per cent stake in CIE Automotive, making it the second largest shareholder after Gestamp in the Spanish firm. "We will nominate two directors to the CIE Automotive board. We will have around 20 per cent stake in Mahindra CIE," Mahindra group chairman Anand Mahindra said while announcing the deal.
Mahindra said, "We did something uncharacteristic for us... but something we thought was right for the employees, customers and our shareholders. With this deal, we will achieve consolidation of our entities and become a global player."
CIE will get majority stake in Mahindra CIE and it will nominate four directors on its board while Mahindra will have three directors. CIE will make open offer to buy shares of three listed companies from the public under the Sebi guidelines. If the CIE public offer gets 75 per cent response, its stake will come to around 51 per cent in Mahindra CIE. If there's no response in the public offer, the CIE stake will remain at 46 per cent.
According to Mahindra, the deal is cash neutral as the money that comes from stake sale in five companies will be used to buy 13.5 per cent stake in CIE Automotive. "It was our intention to consolidate these five companies at one stage. If you want to be successful in this business, you should have a global supply chain. You have to globalise. You can't build a supply chain unless you have economies of scale and build a critical mass. If we combine our businesses we would end up as a company with a $3 billion business and arguably one of the world's top 25 automotive component companies in the world," Mahindra said.