Mahindra & Mahindra Ltd. (M&M) has announced that it proposes to purchase Navistar Group’s stake in Mahindra Navistar Automotives Ltd. (MNAL) and Mahindra Navistar Engines Pvt. Ltd. (MNEPL). Following the purchase, both MNAL and MNEPL would become wholly-owned subsidiaries of Mahindra & Mahindra which would take complete ownership of operations and continue to sell MNEPL and MNAL products.
The sale requires regulatory approval in India, is subject to the conclusion of definitive agreements and is expected to be completed in early 2013.
The terms of the proposed transaction call for M&M to pay approximately Rs. 175 crores or $33 million for Navistar Group’s stake in both ventures. The agreement allows Navistar to continue sourcing components from India, while Mahindra would continue to provide engineering services to Navistar.
The Navistar Group would continue to support M&M through a licence agreement and extend necessary support to MNAL and MNEPL for the purposes of business continuity.
As part of its “Drive to Deliver” turnaround plan launched in August, Navistar has been conducting an analysis of all of its businesses and programs to determine their return on invested capital (ROIC) and identify areas for improvement. Based on this business environment, Navistar has determined that it needs to redirect its efforts to other initiatives that more quickly contribute to the company’s goal of improving its ROIC.
“Since it was established in 2005, Mahindra Navistar Automotives Ltd. has created a niche for itself in the Indian CV industry,” said Dr. Pawan Goenka, President, Automotive and Farm Equipment Sectors, Mahindra & Mahindra Ltd. “MNAL has set up a world class dealer and service network for trucks, which, coupled with synergies with Mahindra’s dealer network, gives us a significant opportunity to grow our presence in the truck market.
In addition, the product has been well accepted as is evident from our high ranking in the TNS customer satisfaction survey. M&M is committed to the success of the truck business. We acknowledge the contribution made by Navistar to this venture thus far and appreciate their support for business continuity after they exit the business.”
“While the Indian market has not expanded as we had originally expected and industry challenges there continue in the near term, we still see promise in India going forward. But given Navistar’s 2013 priorities, our capital and focus needs to be allocated to other business opportunities in the near term,” said Mr. Troy Clarke, President and Chief Operating Officer, Navistar. “Mahindra has extensive experience and knowledge of the Indian automotive sector and they are best situated to devote the time and resources required to capitalize on future opportunities in India.”
Navistar and Mahindra entered into the MNAL joint venture in late 2005 to manufacture trucks and buses in India, source components and provide engineering services for the design and development of Navistar vehicle products. The MNEPL joint venture, formed in 2007, began producing engines in 2010.
In a message complimenting the M&M role in this regard, Mr. Nalin Mehta, Managing Director & CEO, Mahindra Navistar Automotives Ltd., said: “We would like to express our deep appreciation and gratitude for the support that you have provided to the truck business to enable MNAL to develop and launch contemporary and competitive product range in the heavy commercial vehicle segment.
The products have been successfully launched, and we are quite confident that they are well on their way to become a success story in the CV Industry. In the LCV segment, we already have double-digit market share and we are confident of further strengthening our position all across India.
We value our relationship with all business associates of the two companies and will continue to work jointly with you to enhance our presence and footprint in the Indian CV industry”.