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MUMBAI : Escorts Ltd said Japan’s Kubota would invest 1,873 crore in the farm equipment maker and become a joint promoter, alongside the founding Nanda family.

The investment will raise Kubota’s stake in the Indian company to 14.99% from 9.09%, Escorts said on Thursday.

The shares will be sold to Kubota after shareholder and regulatory approvals at 2,000 per share, a 29.5% premium to the floor price determined based on the Securities and Exchange Board of India’s (Sebi’s) rules, Escorts said.

Shares of Escorts jumped 10.6% on Thursday to close at 1,802.9 on BSE.

In line with Sebi’s takeover regulations, Kubota will also offer to buy an additional 26% stake in the company from public shareholders at 2,000 per share. In case of a complete subscription to the open offer, Kubota will end up with a 44.8% stake in the company (including cancellation of certain shares held by Escorts Benefits and Welfare Trust).

The company said it would change its name from Escorts Ltd to Escorts Kubota Ltd.

Nikhil Nanda will continue to be the chairman and managing director of the company. Existing promoters are not selling any shares in this transaction. The Nanda family owns 11.6% of the company and a 25% stake held through Escorts Benefits and Welfare Trust.

The statement added that the change in control of Escorts would lead to an indirect change in control of Escorts Finance Ltd. Thus, Kubota will make an open offer to the public shareholders of Escorts Finance to acquire up to 26% of the share capital. In addition, Escorts’ board will also evaluate the feasibility of a merger of Escorts Finance with the parent.

“This will enable both companies to enhance the value they have created by leveraging each other’s strengths—be it in technology, market access, manufacturing processes or engineering excellence. With this, Escorts is positioned to become an institution that will serve Indian and global farmers for decades and centuries. While Escorts is known for its stronger India presence with proven strengths in frugal engineering and manufacturing, Kubota brings world-class processes and global reach and expertise," said chairman Nanda.

Escorts will be the exclusive manufacturer and seller of certain products in India and the exclusive supplier from India for Kubota. Given this, the companies have also decided to explore the feasibility of merging Kubota’s Indian subsidiaries (where Escorts is also a partner) into Escorts.

JM Financial advised Escorts on this transaction, while Morgan Stanley advised Kubota.

To be sure, the deepening of its partnership with Kubota is expected to strengthen Escorts’s position in the farm equipment market amid rising raw material costs and subdued rural demand.

“We believe tractor (industry) volumes would decline in H2 FY22, and a similar trend for Escorts, higher raw material costs will continue to be a headwind in the near to medium term. Rural sentiment has yet to return to normal, and with only the festival season in the near term as a demand booster, we continue to expect overall volumes to decline this year," brokerage Anand Rathi said in a 29 October note.

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