Page 54 - IACC Newsletter January 2013 Issue no. 8 HD

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TPG, a global buyout fund with around $54.5 billion of assets, owns 4.6 crore shares, or 20.27% of Shriram Transport,
which can be sold either in pieces or in one block. At Friday's closing price of Rs 750.20 a share, these shares command a
value of Rs 3,450 crore. STFL, which controls up to a fourth of the pre-owned truck financing business and 7-8% of new
truck financing, commands a market value of Rs 17,018 crore.
While the Shriram Group declined comment, one official, who requested anonymity, said the group was not averse to
the Piramal Group coming in as a minority shareholder, although details about the rights the new minority shareholder
would have were yet to be finalized.
"The valuation part of the deal is more or less finalized. However, the relationship between the new financial investor
and the management is yet to be defined," the official said. Although it may not enjoy the same covenants held by TPG,
it is expected that the Piramal Group could be granted some privileges by virtue of its large holding. The senior Shriram
official said the group was not keen to give special rights of the sort TPG enjoyed to the buyer. "But, we have not
reached that stage," the official added. A former head of another US private equity firm said ideally for Shriram, TPG
should have sold its interest to another like-minded financial investor.
"Knowing Piramal's interest in financial services, a sale will be like bringing in a Trojan horse," said the person,
requesting anonymity.
Mahindra & Mahindra to buy US partner's stakes in truck JVs
Utility and tractor manufacturer Mahindra & Mahindra (M&M) has decided to buy the stake held by its US-based
partner, Navistar International Corporation, in the truck and engine making joint ventures (JV) — Mahindra Navistar
Automotives Ltd (MNAL) and Mahindra Navistar Engines Pvt. Ltd (MNEPL) — for about Rs 175 crore.
M&M will acquire the 49 per cent stake held in both the JVs by the Navistar Group and make them wholly-owned
subsidiaries. The JV for trucks was formed in 2005, while the JV for engines was formed in 2007.
While neither of the companies explained the logic behind such a move, experts said that despite being in the market
for over three years, the JVs did not witness the demand expected from them, forcing the US partner to reorganize its
The truck JV is yet to generate profits and M&M’s estimates of turning cash break-even this financial year remains bleak,
due to the on-going slump in demand for heavy trucks in the domestic market.
Following the stake buy, M&M would take complete ownership of operations and continue to sell MNEPL and MNAL
products. The sale requires regulatory approvals in India, is subject to conclusion of definitive agreements, and is
expected to be completed in early 2013, the Mumbai-based company said in a statement.
The deal allows Navistar to continue sourcing components from India, while M&M would keep providing engineering
services to Navistar. The US Company would continue to support M&M through a license agreement and extend
necessary support to MNAL and MNEPL for the purpose 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 programmes 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 to improve its ROIC,” Navistar said.
Until last year, MNAL had seen an investment of Rs 710 crore with M&M projecting a further infusion of Rs 250 crore
during 2012-14 for production and distribution expansion. M&M had Rs 750 crore of equity and 50-50 invested by both
the partners along with debt as of that date.
Troy Clarke, president and CEO of Navistar, said, “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.”