M&M buys Maserati-designer Pininfarina for Rs 370 cr: Here are the key facts about the deal

Mahindra group chairman Anand Mahindra in a view to strengthen his presence in the automobile and industrial design space entered into an agreement to acquire Italian design company Pininfarina for an outlay of 50 million euros or Rs 370 crore following months of negotiations. In fact, Mahindra had expressed interest in acquiring the company in March but no agreement was signed then. However, investors seem not too enthused about the development as M&M shares were up 0.6 percent on the BSE and those of Tech Mahindra were down 1.5 percent. The Sensex is up 0.11 percent. Here are the key facts you need to know about the deal:  How the deal is structured The Mahindra group will be forming a special purpose vehicle in which the group firms Tech Mahindra and parent company Mahindra & Mahindra would own 60 percent and 40 percent, respectively in the Turin-based entity. In a release issued to the BSE, the company said Tech Mahindra and M&M will purchase 76.06 percent of Pininfarina shares from the current controlling shareholders Pincar srL at a price of 1.1 euro per share. The acquisition cost of 25.3 million euros through a special purpose vehicle would be funded by Tech Mahindra and M&M in the ratio of 60:40. Further, the companies will make an open offer for acquiring the remaining 23.94 percent stake of Pininfarina at the same purchase price paid for the shares held by Pincar. According to a report in The Economic Times report, the company will in total spend Rs 1,240 crore, including for an open offer and 20 million euro rights issue. The fund infusion into the design and styling major will be executed before the end of 2016. How the deal will add value to the group Italy’s Pininfarina has high-end design credentials which will significantly enhance the design capabilities of the entire the Mahindra group. Commenting on the acquisition, Mahindra Group Chairman Anand Mahindra said: “Pininfarina will add enormous value to Tech Mahindra’s portfolio of engineering services.” Keeping in mind the increasing design sensibilities of today’s consumers, Mahindra said product design will greatly influence customer choice and experience and hence the group’s success. For Pininfarina Spa, Chairman Paolo Pininfarina said the deal will not only strengthen Pininfarina’s Italian identity but will open more doors as Tech Mahindra’s global presence and global delivery model will allow them to compete for a larger pie of the business. Tech Mahindra CEO and MD CP Gurnani said adding Pininfarina’s legendary design skills to the company’s integrated engineering solutions enables a strong entry into automotive styling, design and development and reinforces body engineering capabilities. What is Pininfarina all about Pininfarina was founded by Battista ‘Pinin’ Farina 85 years ago, and the company has designed almost 1,000 cars across brands over the years. In last few years, the company also entered into design of planes, boats and wind tunnels for car tests, the Economic Times report said. Being a car styling company, the company also boasts of iconic brands such as Ferrari, Maserati, Rolls-Royce and Cadillac for which it undertook designing work. In calendar year 2014, the company reported revenue of 86.6 million euros with an EBITDA margin of 8.1 percent and net loss of 1.3 million euros. However, this calendar year during the nine-month period, revenue declined by 6.1 percent leading to an EBITDA loss of 0.3 million euros, according to an Edelweiss Securities report. What brokerages are saying Edelweiss Securities expects acquisition of Pininfarina to open up more cross-selling opportunities for Tech Mahindra and help expand its portfolio of services. The acquisition is a smaller one compared to past acquisitions like LCC and Pininfarina’s low margins will not materially impact Tech Mahindra numbers. But, given that LCC integration is still underway, investors will be curious to know more details about the current acquisition, rationale for the same and its possible impact on Tech Mahindra’s financials, the report said maintaining a ‘buy’ rating on the stock with a target price of Rs 630. LCC is Lightbridge Communications Corporation, which Tech Mahindra had acquired in November 2014 for an enterprise value of $240 million. Mahindras continue to take inorganic route Mahindra group has been active on the acquisition front. Last year Mahindra Two Wheelers, a group firm, had acquired Peugeot Motorcycles (PMTC), a part of the euro 54 billion France-based PSA Group for 28 million euros. In 2011, the Mumbai-based firm acquired South Korea’s SsangYong Motor Company (SMC). It now holds around 70 percent stake in SMC, for which it has shelled out $463 million. With inputs from agencies