Mahindra hopes to secure Aston Martin deal this week

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  • November 27, 2012
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Invest Industrial bid between 200 million and 250 million pounds ($400 million) for a stake

 

 

Aston Martin Virage

 

 

 

India's Mahindra and Mahindra hopes to strike a deal to buy Aston Martin by the end of the week, a source with direct knowledge of the matter said.

 

Mahindra is said to have topped an offer for Aston Martin from Italian private equity fund Investindustrial.

 

"There are a lot of moving parts here," the source told Reuters on Monday, adding that an initial 40 percent stake could rise to 50 percent for a total price unlikely to top $400 million.

 

Kuwait's Investment Dar denied on Sunday that it is reviewing rival bids from Mahindra and InvestIndustrial for 50 percent of the UK luxury sports car brand. However, sources said the bidders were wrangling over issues on management control.

 

Recouping investment

 

Investment Dar led a group that bought Aston Martin from Ford Motor Co. in 2007 for 479 million pounds, or $925 million at the time. Analysts have said that Investment Dar, which went to the market for a $1 billion debt restructuring last year, hoped to recoup what it had sunk into Aston Martin -- meaning a value for the firm of about $1 billion.

 

InvestIndustrial bid between 200 million and 250 million pounds ($400 million) for a stake, a source had said earlier.

 

An apparent lack of interest among major carmakers, such as BMW, Daimler or Toyota, may have left the way open for Mahindra and InvestIndustrial, which sold Italy's Ducati high-end motorcycle brand to Audi earlier this year.

 

Mahindra owns Korea's Ssangyong SUV maker and is the world's biggest tractor maker. It has seen India's Tata Motor do well in buying Jaguar Land Rover four years ago.

 

Nonetheless, some analysts questioned the logic of linking the Mahindra family to Aston Martin -- though the 99-year-old British firm had its heyday in the 1950s and 1960s when it was owned by another tractor man, industrial magnate David Brown from Yorkshire, England, founder of the classic DB model line beloved of James Bond.

 

"It's difficult to visualize a tractor and an Aston Martin in the same garage," said Mads Kaiser, a fund manager with JI India Equity Fund. "The acquisition will broaden their portfolio but doesn't add anything to their tractor or India portfolio."

 

Shares in Mahindra fell more than 3 percent on Monday. Investors will be wary of the risk of "trophy acquisitions" that a tempting, vanity brand like Aston Martin might pose.

 

Anand Mahindra, whose family company is one of India's biggest businesses, has plenty of cash at his disposal with a corporate debt-to-equity ratio of 0.29 at the end of March.

 

But Ashvin Chotai, managing director of consulting firm Intelligence Automotive Asia in London, said: "Aston Martin technology is so far beyond anything that Mahindra is doing at the moment that it's hard to see any synergies either way. The main thing Mahindra would bring to Aston Martin is money and maybe resources. But they're not bringing a lot of experience."

 

 

V12 Zagato

 

 

 

 

Investment welcome

 

For Aston Martin, analysts say, sales of only 4,200 cars last year and tight margins mean that a boost of investment would be welcome to refresh its model range and, notably, build new engines as new European Union emissions criteria loom ahead.

 

"We view this bid with caution as we believe the latter will require significant investments in r&d and benefits of technology transfer to M&M's product portfolio is questionable given little similarity between portfolios," Indian brokerage Edelweiss Securities said in a research note.

 

Costs including research and development and sales account for about 25 percent of sales at Aston Martin, compared with 12-14 percent at luxury car rivals such as BMW, Jaguar Land Rover and Daimler, a Barclays report said. "Large investments could be required to expand product portfolio and distribution reach," the report said.

 

One voice speaking up in favor of Mahindra was that of the Unite trade union representing UK workers at Aston Martin. "We are in favor of a deal that secures the future of the company and injects capital," said Tim Parker, a regional officer for the union. "We have doubts about private equity because of the reputation the private equity industry has with regards to cutting costs. We are more positive on the Indian company which has a reputation and a stake in the industry."

 

Mahindra has had mixed success in its overseas forays. It pulled the plug this year on plans to roll out a pickup truck in the United States, although it has made progress turning around Ssangyong, which it bought for $460 million in 2011. It has been looking for acquisitions to expand its portfolio and gain access to new markets. Earlier this year, it was reported to be interested in buying at least part of Swedish carmaker Saab Automobile, later bought by a consortium.

 

Last year, Aston Martin's adjusted earnings before interest taxes, depreciation and amortization fell 18 percent to 76.2 million pounds. Aston Martin's 2011 revenue was 507 million pounds.

 

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