New Delhi: Mahindra & Mahindra, India’s largest tractor and utility vehicle maker, won a hotly contested bidding war for a 43.5% stake in Punjab Tractors Ltd, by offering to pay Rs951 crore, or Rs360 a share.
Mahindra outbid Ashok Leyland Ltd, the country’s second largest busmaker, said people familiar with the matter but who did not wish to be named. The per-share offer is an 18.4% premium to the closing price of Rs304 for India’s fifth-largest tractor maker.
A Mahindra spokesperson declined to comment, while a spokeperson for the Burmans confirmed their stake has been sold. Tractor sales are growing at double-digit rates for the past two years, boosted by a 9% economic growth and better credit availability. About 18.5% more tractors, or 292,908 units, were sold in fiscal 2006, from a year ago, according to the Tractor Manufacturers Association of India.
Control of Punjab Tractors will help Mahindra add nearly 10 percentage points to its 30% market share. It will also help the company gain a presence in the heavier-capacity tractor segment, a manufacturing facility in the north and access to facilities of Punjab Tractors’ units such as Swaraj Engines.
“Punjab Tractors continues to enjoy strong equity in the tractors market and has a vast dealer network that can be leveraged by M&M,” according to a recent note by S. Ramnath, SSKI securities vice-president.
Mahindra will have to make an open offer to minority shareholders for 20% of Punjab Tractors, according to Indian takeover rules. If the offer is fully subscribed the total outgo for the Mumba-based company would amount to Rs1,389 crore. That doesn’t include an offer for units such as Swaraj Engines. Punjab Tractors also has a 33.2% stake in Swaraj Engines, which makes diesel engines for tractors. A successful bidder with anything more than 46% of Punjab Tractors will effectively hold more than 15% in the engine company and will have to make an open offer to the minority shareholders. Private equity firm Actis Capital LLP, holds 29% of Punjab Tractor and the remainder 14.5% is owned by Mohit Burman, related to the promoters of Dabur India Ltd. Citigroup advised Actis on the deal.
Mahindra has a 24% market share in northern India, the largest market for tractors because of foodgrain-producing states such as Punjab and Haryana. When completed, the acquisition will boost its market share there to 36%. Punjab Tractors can produce up to 60,000 units a year which compares with Mahindra’s annual capacity of 140,000 units. Punjab Tractors posted a 3.2% increase in net revenue to Rs 730 crore for the nine months ended December 2006, while profits rose 129% to Rs122 crore due to a one-time gain. Punjab Tractors’ shares closed 0.98% lower at Rs304 on the Bombay Stock Exchange.