Mahindra & Mahindra Ltd. was named preferred bidder for a controlling stake in South Korea’s Ssangyong Motor Co. as India’s largest maker of sport-utility vehicles aims to raise sales outside its home market.
Ssangyong, operating under bankruptcy protection, plans to reach a preliminary agreement with Mahindra by the end of August and sign a contract for the sale in November, it said in a statement to the Korea Exchange. The automakers didn’t disclose the size of the Mumbai-based company’s bid for Ssangyong, which has a market value of 440.7 billion won ($369 million), according to Bloomberg data.
Obtaining control of Ssangyong may boost Mahindra’s plans for global expansion after buying Renault SA’s stake in an Indian car-making venture in April and drawing up plans to introduce a pick-up truck in the U.S. later this year. The purchase may also add Ssangyong’s SUV and small-car expertise and give access to markets including Russia, where the South Korean company exports vehicles.
Mahindra will get access to brands, technology and distribution networks overseas, said Vaishali Jajoo, an analyst at Angel Broking Ltd. in Mumbai. “It all depends on the valuation. It’s a bankrupt company and that should be kept in mind.”
MoneyToday, a Korean-language online newspaper, said in May that a deal for Ssangyong may be worth at least 700 billion won. Mahindra, which has 25 billion rupees ($535 million) of cash, will fund the purchase through a combination of debt and equity, Group Chief Financial Officer Bharat Doshi told reporters today.
Ssangyong had $640 million in long-term debt as of December, Doshi said. The borrowings will be repaid with the money Mahindra is paying to acquire the stake, he said, declining to disclose the bid amount.
Ssangyong, based in Pyeongtaek, South Korea, fell 8.5 percent to 11,850 won in Seoul, the lowest since May 27. Mahindra rose 1 percent to 633.05 rupees in Mumbai, extending the stock’s advance this year to 17 percent.
A decision by France’s Renault and its Yokohama, Japan- based partner Nissan Motor Co. not to bid for Ssangyong is weighing on the South Korean company’s shares, said Kang Sang Min, a Seoul-based analyst at Hanwha Securities Co.
“Many investors bought the stock on the expectation that Renault-Nissan alliance would buy Ssangyong,” he said.
Renault, which owns 80 percent of Busan, South-Korea based Renault Samsung Motors Co., will look at other options for their business expansion in Korea, spokeswoman Caroline De Gezelle said by telephone on Aug. 8.
Ssangyong, formerly controlled by China’s SAIC Motor Corp. sought bankruptcy protection early last year after higher oil prices and the global recession squeezed sales of its mainstay SUVs, resulting in a cash shortage.
The company sold 43,881 vehicles including 26,190 exports in the first seven months of this year, compared with 13,091 a year earlier, when the carmaker’s production was disrupted for 77 days as workers opposed to job cuts staged a sit-in.
Mahindra aims to tap Ssangyong’s network of 1,300 dealers outside South Korea, and will eventually start selling the carmaker’s SUVs in India, said Pawan Goenka, president, automotive and farm sector. The two automakers will have a combined sales of more than $4 billion, he said.
“Mahindra brings financial strength, frugal engineering, sourcing and market synergies to Ssangyong,” Goenka said. “It is not far from breakeven.”
NM Rothschild & Sons Ltd. and Samsung Securities Co. are advising Mahindra on the deal, said V.S. Parthasarathy, executive vice president finance and mergers and acquisitions.
Mahindra said in May its budget for capital expenditure over the three years ending March 2013 will be 45 billion rupees. The automaker more than doubled its net income to 20.9 billion rupees last fiscal year as vehicle sales surged.
In May, Mahindra agreed to buy a 55 percent stake in Reva Electric Car Co., a closely held company based in Bangalore in south India 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.
India’s biggest tractor maker also plans to keep Ssangyong an independent entity run by local managers, Vice Chairman and Managing Director Anand Mahindra said. “Ssangyong gives Mahindra a leg into all the emerging and growing markets.”