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Mahindra & Mahindra
On track to become a global SUV company; maintain Buy
Ssangyong acquisition at US$463m. Ssangyong Motor Co. and
its preferred bidder M&M signed an agreement on 23 Nov,
whereby, at a total acquisition cost of US$463m, M&M acquires a
70% stake in SMC. The cost is split up into US$378m in new
stock and US$85m in corporate bonds. The acquisition works out
at ~0.5x price to sales.
Roadmap created. The definitive agreement contains details of
information on securing outside investment, repayment of
rehabilitation claims to protect creditor interests, normalisation of
SMC operations, and establishment of principal management,
among other matters.
Future timeline. The next steps involve approval of the revised
corporate rehabilitation plan by creditors in Jan ’11, following
which, the acquisition is likely to be completed in Feb/Mar.
To leverage synergies. The two companies would offer different
competencies: M&M in sourcing and marketing strategy and SMC
in technology. A harmonious union of these two companies
would help create a global SUV player as well as introduction of
SMC’s premium products in India. Ensuring a sustainable
turnaround at SMC would be a key challenge ahead for M&M.
target price of `899 a share. Key risks are possibility of higher
interest rates and negative surprises from the overseas acquisition.
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