Mahindra signs deal to buy Ssangyong

November 23, 2010
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, MUMBAI, Nov 23 – Indian carmaker Mahindra and Mahindra Tuesday signed a deal to buy a controlling stake in South Korean auto maker Ssangyong, in a move likely to create a global player in sport utility vehicles.

The 463-million-dollar deal will end financial uncertainty for the Korean company, which slipped into court-approved bankruptcy protection early last year on weak sales and rising losses.

The companies expect the deal to be completed in March 2011, with Mahindra getting a 70 percent stake in the Ssangyong firm.

In August this year, creditors in Seoul had selected the Indian company as their preferred bidder.

With the deal, Mahindra becomes the second Indian carmaker to enter the South Korean market after Tata Motors, which bought truck maker Daewoo Commercial Vehicle in 2004.

"The coming together of Mahindra and Ssangyong will result in a competitive global UV (utility vehicle) player," said Pawan Goenka, head of Mahindra\’s automotive section.

He said both sides would gain from the tie-up, with Mahindra bringing competence in sourcing and marketing as well as its financial capability, and Ssangyong providing technological advantages.

A joint statement said the acquisition would offer financial stability to Ssangyong and that the two companies would work to strengthen Ssangyong\’s product portfolio.

The deal comprises 378 million dollars in new stock and 85 million dollars in corporate bonds.

Ssangyong was majority-owned by SAIC Motor Corp. until the Chinese company lost management control during the bankruptcy process.

Auto analysts said the deal was attractive to all interests, promising a wider market segment for Mahindra while Ssangyong would see an infusion of capital and a renewed strategy for growth.

Mahindra has plans to launch some of Ssangyong\’s premium SUV models in India, which is Asia\’s third-largest car market and is enjoying robust growth.

"Mahindra will get a bigger market segment (in SUVs) and a stronger global presence," said Vaishali Jajoo, analyst with Mumbai-based Angel Broking.

Ssangyong has 1,300 distributors outside Korea, with a strong presence in Europe.

Mahantesh Sabarad of Fortune Equity expects Ssangyong\’s growth to gather pace in coming months, led by a "renewed focus" from the new management.

Mahindra shares rose over one percent to 774.35 at the Mumbai stock exchange, after the signing of the deal, before slipping on profit taking to 762, down 0.57 percent in afternoon trade.

Deepak Jain of Edelweiss Securities said Ssangyong could be experiencing a turnaround as labour concerns end and with the launch of the new Korando C vehicle.

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