Mahindra Partners With Spain’s CIE Automotive

The Mahindra Group recently announced a global alliance agreement between its automotive component businesses and Spain’s CIE Automotive SA. The combined entity will have annual sales of approximately USD 3 billion (Rs 15000 crore) with operations in North America, South America, Europe and Asia.

As per the transaction, there will be a cross holding of shares through a swap. Mahindra will hold 13.5% stake in CIE Automotive making it the second largest stakeholder in CIE. At the same time, CIE will acquire 51% stake in the combined entity called Mahindra CIE Automotive. This entity will continue to operate the current Systech automotive component businesses globally and include CIE’s European forgings operations.

Mahindra Systech consists of the listed companies Mahindra Forgings, Mahindra Ugine Steel and Mahindra Composites and the unlisted companies Mahindra Hinoday Industries and Mahindra Gears.

An open offer has been announced for the shares of Mahindra Forgings and Mahindra Composites to be acquired by CIE. The offer price for these 2 companies has been decided at Rs 81 per share and Rs 74 per share respectively. On account of the premium offered to the current market price, share prices of Mahindra Forgings and Mahindra Composites have seen considerable gains.

This partnership will give Mahindra access to global markets and to technology without any significant cash outflow. Moreover, CIE operates at a healthy margin of 12-13%, which will act as a positive for the combined entity. It will also have an extensive geographical presence and a widened product portfolio hence benefiting operations to a large extent.

Clearly, the deal brings a lot of synergy and without weighing on the balance sheet. It will help scale up the components business of Mahindra and be beneficial to the overall operations. We maintain our positive outlook on the performance of Mahindra & Mahindra, thanks to the potential of value unlocking from its subsidiaries. Through acquisitions and partnerships, Mahindra has been working on driving overall growth.