Mahindra & Mahindra Ltd., India's largest SUV maker, will pay 427.1 billion won ($378 million) for a controlling stake in South Korea's Ssangyong Motor Co., the companies said Tuesday.
Mahindra, which aims to widen its model range and boost sales overseas, will take a 70 percent stake by buying new shares in the deal, which needs approval from Ssangyong creditors. Mahindra also will buy 95.4 billion won (about $84 million) of new bonds from Pyeongtaek-based Ssangyong.
Mahindra expects to complete the acquisition by March, the company said. The automaker was named the preferred bidder in August.
Mahindra intends to introduce as many as three new Ssangyong models in four years to help revive sales at the Korean SUV-maker, which sought court protection from creditors following a plunge in sales. The deal gives Mahindra access to more-advanced engines and helps widen its dealer network in Asia and Europe amid rising competition in India.
“The acquisition is a good strategic fit for Mahindra but the financial transaction wasn't cheap,” said Mahantesh Sabarad, a Mumbai-based analyst at Fortune Equity Brokers (India) Ltd., who rates Mahindra “sell.” “Turning around the company will be difficult. They are taking a big risk.”
The final agreement was filed today with the Seoul Central District Court, which is overseeing Ssangyong's restructuring. Samjong KPMG Advisory Inc. and Macquarie Group Ltd. are arranging the sale.
Mahindra may use Ssangyong engines in pickups it plans to sell in the United States as the company works to pare its reliance on the Indian market. The automaker in August won approval from the U.S. Environmental Protection Agency to introduce vehicles in the country. A legal dispute with a distributor has disrupted the start of sales.
Mahindra also bought out partner Renault SA in a domestic sedan-making venture this year and acquired control of Bangalore-based Reva Electric Car Co. to broaden its automobile lineup. The company also may build Ssangyong models in India, Pawan Goenka, president of Mahindra's automotive and farm equipment division, said in September.
Ssangyong, formerly controlled by SAIC Motor Corp., China's largest automaker, sought bankruptcy protection in February 2009 after higher fuel prices and the global recession squeezed sales of its mainstay SUVs.
Bloomberg contributed to this report