CIE Automotive and Mahindra Group Tie Up

Mahindra Group has entered into a global alliance with Spain’s
CIE Automotive S.A. The agreement will come under Systech
Sector, which happens to be the Mahindra group automotive
component, and CIE Automotive (also involving their subsidiary,
Autometal). The alliance led to the formation of an automotive
component group with a global presence. The combined sales of
the global automotive component group will be around $3 billion.
The expected areas of operation will include South America,
North America, Asia, Europe and will conduct operations via
India, Spain, and Brazil.

CIE Automotive is set to acquire a stake in the Mahindra Group.
The transaction will see a subsidiary of the Spanish company
acquiring stakes in the unlisted and listed companies namely
belonging to Systech Sector. Along with amalgamating its
businesses in Lithuania and Spain, CIE Automotive is set to
combine all the companies under MFL. The consolidated companies
will be renamed as Mahindra CIE and will carry on as a listed
company on the National and Bombay Stock Exchange.

The complex business transactions will be executed over a series
of steps, which will eventually lead to the following
activities: Mahindra and Mahindra will own a stake of 13.5
percent in CIE Automotive, making it the second biggest
shareholder in CIE. Two directors from M&M will be nominated to
join the CIE board.

Mahindra Group has entered into a global alliance with Spain’s
CIE Automotive S.A to consolidate its position in the automobile
business

Mahindra Systech:

The company was established in 2004 by the Mahindra Group with a
vision. The Mahindra Group entered into the components industry
as India's global competitiveness took off.

Mahindra Systech portfolio includes Castings, Forgings,
Stampings, Gears, Rings, Magnetic products, Steel, Composites,
Engineering and Contract Sourcing services. It offers a variety
of components and services to the automotive and other
ground-based mobility industries around the world. The Company
operates its manufacturing units across India, Germany, Italy,
and the UK, The area of work includes forgings, castings, gears,
stampings, steel & rings, magnetic, composites, contract
sourcing, engineering services, and aerospace.

CIE Automotive:

The company is one of the main suppliers of components and
sub-components for the automobile sector operating in Europe,
Brazil, Nafta, and China.

The Company manufacture components and sub-assemblies for all
parts of vehicles, including: (i) the engine and power train;
(ii) the chassis and/or steering assembly; and (iii) the
exterior and interior of the vehicle, with these seven basic
processes or technologies i.e. forging, machining, aluminum,
stamping, plastic, iron casting and painting. The Companies
operations in Brazil, Mexico, USA, and China are constituted
under its subsidiary, Autometal, listed on the Sao Paolo stock
exchange.

The business model concentrates on diversification and
flexibility of technologies, clients, vehicle platforms,
suppliers and geographical localization. This has enabled them
to minimize risk and obtain significant economic results, with
low dependence on vehicle platforms, or specific clients or
industrial plants.

Structuring of Deal:

As part of the cross-border swap deal reached after
two-and-a-half years of negotiations, CIE Automotive would take
a majority stake in a single listed entity in India. This entity
would continue to operate the current automotive component
businesses of Mahindra Systech globally. This would also include
CIE’s European forgings operations.

As part of the complex deal announced, Mahindra group that has
interests in businesses including automobile and information
technology will merge all its auto components businesses into
its Mahindra Forgings unit.

CIE will buy a majority stake in the combined auto component
unit of India's diversified Mahindra Group for about $116
million to get access to new markets and supply networks. The
listed Mahindra units in which CIE will buy stakes are Mahindra
Forgings, Mahindra Composites, and Mahindra Ugine Steel.

Mahindra Forgings will be renamed Mahindra CIE Automotive, in
which Spanish auto components maker CIE will hold 51 percent and
Mahindra will own about 20 percent stake in the new entity. The
rest will be held by institutional and public shareholders.

Name of Holder %Shareholdings

Spanish auto components   51.1%

Mahindra   20.2%

Institutional and Public Shareholders   28.7%

Looking at the shareholding it does raise some questions in the
mind of investors for choosing such a structure as Mahindra’s
are known for acquiring majority stakes in any acquisitions or
JV’s. But looking at the long-term objective of the company it
would, in fact, be beneficial as CIE would provide a platform to
Mahindra for entry into new markets to become a truly global
player. Mahindra CIE will become one of the top 25 global auto
component suppliers, with annual sales of $3 billion and
operations from North America to Asia.

The amount invested by CIE i.e. €100 million for the stake would
be used by the group flagship Mahindra & Mahindra Ltd., to
acquire a 13.5 percent stake in the Spanish firm making it the
second largest shareholder in CIE. As part of the deal, M&M also
gets to appoint directors on CIE’s board. The deal said Mahindra
officials is “cash neutral”.

Looking at the above transaction details it can be seen that
multiple transactions were concluded simultaneously. The
transactions were not only cashless and tax efficient but would
also maintain rights for policy making and direction in which
the company would run as the effective holding of promoters
would be more than 27% (13.5%*51% + 20.2%).

Going ahead the promoters of the company can also look into
delisting the company from stock exchange without many tussles
as the shareholding of Institutional and Public shareholding is
close to bare minimum holding required for a listed company i.e.
25%.

Opportunities for:

Mahindra –

After this transaction, M&M will be considered as the second
largest shareholder of CIE Automotive. This tie-up will enable
M&M to enter Latin American markets while offering the European
partner footprint in the Indian market.

CIE Automotive is one of the main suppliers of components and
sub-components for the automobile sector this will help M&M to
reduce its cost of production.

Meanwhile, the deal unlocks value for stakeholders in the
numerous auto-component firms. As per the Indian takeover rules,
any company buying a 25 percent stake in a listed Indian entity
will have to launch an offer for at least 26 percent more from
the public.

Mahindra, which has had a hard time building a presence outside
India, has been scouting for overseas tie-up opportunities in
recent years to realize a long-standing ambition to be a global
player.

Also since CIE would have controlling interest it will help
Mahindra to be fully recognized as auto-component manufacturer
globally. Mahindra, which initially used their auto-components
mainly for captive consumption can now tap other OEMs both in
India and abroad for their component business.

CIE Automotive –

In India Mahindra Group operates in the key industries that
drive economic growth, enjoying a leadership position in
tractors, utility vehicles, after-market, Information Technology
and vacation ownership. This will help CIE to make their
presence in India with the help of name and fame of Mahindra.

Mahindra also enjoys a strong presence in the agribusiness,
aerospace, components, consulting services, defense, energy,
financial services, industrial equipment, logistics, real
estate, retail, steel, commercial vehicles and two wheeler
industries. Due to this CIE Automotive will be able to get a new
line of business activity.

Conclusion

The structure used by Mahindra is a talking point for many and
they would argue for the same. But looking at the long-term
benefits that they would derive it seems to be justified.
Through this deal, Mahindra is able to get global footprints for
which they have been striving for many years. And they will be a
player very much experienced in those areas and will be able to
tap other global OEMs. Also, the deal will enable them to
consolidate their various auto component businesses under one
roof instead of through complex legal procedures. 

About the Author: M&A Critique is the only magazine, news
published from India which gives M&A news, Mergers and
Acquisitions news, Analysis, Restructuring, Takeovers and JV.
Read More on - https://mnacritique.mergersindia.com  

 By : M&A Critique

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