New Delhi: Homegrown auto major Mahindra & Mahindra today said it will buy out its US-based partner Navistar Group from their two joint ventures for manufacturing of truck and buses, and engines for Rs 175 crore.
As part of the deal that is expected to be completed by January-February next year, Navistar Group will continue to supply technology to Mahindra & Mahindra (M&M) while it will also continue to use M&M’s engineering services support for its US market.
“This is a friendly buyout as Navistar has decided to focus on their immediate priorities. Overall, we will be paying around Rs 175 crore for their stake in the two joint ventures,” M&M President (Automotive and Farm Equipment Sectors Pawan Goenka told PTI.
M&M and Navistar had set up a joint venture to manufacture trucks and buses in India—Mahindra Navistar Automotives Ltd (MNAL) in 2005. This was followed by another JV, Mahindra Navistar Engines Pvt Ltd (MNEPL) in 2007, for producing engines in 2010.
In both the JVs, M&M had 51 percent stake and Navistar had 49 percent. The two partners have put in a total of over Rs 1,065 crore in the two joint ventures so far. The trucks and buses JV is still a loss-making entity.
Following the buyout, both MNAL and MNEPL would become wholly-owned subsidiaries of M&M, which will take complete ownership of operations and continue to sell MNEPL and MNAL products. “The sale, which requires regulatory approval in India, is subject to the conclusion of definitive agreements, and is expected to be completed in early 2013,” M&M said.
Asked about the future road map for M&M in terms of technology for the trucks and buses business, Goenka said: “MNAL has a completely independent R&D centre and this will continue to be so. Also, as part of our agreement, we have an indefinite licence from Navistar for engines and they will continue to supply us the technology even when we move to higher emission norms. So, there is absolutely no worries on that front.”
Commenting on the development, Navistar President and Chief Operating Officer Troy Clarke 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. But given Navistar’s 2013 priorities, our capital and focus needs to be allocated to other business opportunities in the near term.” Goenka further said M&M would continue to be the partner of preference for Navistar in export markets.
“At present we are discussing exports of our CVs to South Africa and they we will be partners in distribution,” he added. Navistar has been struggling with mounting operational losses. In the quarter ended September 30, it had gained a tax benefit of $196 million but without that its loses would have expanded to $100 million during the quarter as against a loss of $54 million in the year-ago period.
As part of its ‘Drive to Deliver’ turnaround plan launched in August, Navistar has been conducting an analysis of all its businesses and programmes to determine their return on invested capital (ROIC) and identify areas for improvement. In September, the company had announced plans to sell operations to pare operating costs by $150-175 million next year and also to cut jobs.
For M&M, this is the second time in recent years that it has bought off a foreign partner from a joint venture. Earlier in 2010, the Indian firm had bought off French auto major Renault from their JV to manufacture and sell sedan Logan in India.