Indian SUV specialist Mahindra & Mahindra plans to grow its global presence by acquiring a 70 per cent stake in South Korea's Ssangyong. According to newswire reports, Mahindra will pay $US378 million for a controlling stake in Ssangyong, and the deal is scheduled to be finalised in March.
Possibly encouraged by compatriot Tata's largely successful takeover of Land Rover/Jaguar, Mahindra was named as the preferred bidder for Ssangyong back in August.
As part of its rejuvenation strategy for the embattled South Korean brand, Mahindra says it plans to introduce as many as three new Ssangyong models in four years to help boost sales.
Industry analysts suggest the takeover would give Mahindra access to more advanced engines and chassis technology as well as enabling it to widen its dealer network in Asia and Europe.
Mahindra has diversified in a big way over the past 18 months via acquisitions and joint ventures, entering the heavy, medium and small trucks segment (where Tata Motors is the leader in India) and into the two-wheeler market with ambitions of making scooters and motorcycles.
According to Indian news reports, Mahindra's shares have risen 14.5 per cent so far this year, compared with a 5.5 percent rise in the main index and a 31 per cent rise in Tata.
Some Indian analysts have argued it will take Mahindra two to three years to benefit from the Ssangyong acquisition, as there would initially be substantial investment required for product development. Currency fluctuations are also said to pose a risk as about 70 per cent of Ssangyong's sales volume is derived from Europe.
Rakesh Rawal, head of private wealth management at prominent Mumbai-based securities firm Anand Rathi, was quoted as saying: "For now, I would stay away from the stock until I have more clarity. It looks expensive as of now."
Others suggest Mahindra stands to benefit substantially as it would be inheriting a debt-free company whose products are at least two development cycles ahead of its own.
"The acquisition is definitely a strategic fit for Mahindra. It does not clash with its existing bouquet of products," Shishir Bajpai, senior vice-president of equities business at IIFL Wealth Management, was quoted as saying.
Mahindra is no stranger to the Australian market, as its products have been sold here in small numbers for the past several years and the Ssangyong brand is likely to lead to a more significant presence.
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