Financial Daily from THE HINDU group of publications
Thursday, Jan 05, 2006
Financial Daily from THE HINDU group of publications Thursday, Jan 05, 2006 |
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Corporate
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Mergers & Acquisitions Mahindra buys 98.6 pc in UK's Stokes Group — Forging capacity to go up by 36,000 tonnes Our Bureau
Mumbai , Jan. 4 MAHINDRA & Mahindra Ltd (M&M) said on Wednesday that it has acquired a 98.6 per cent stake in Stokes Group Ltd from the existing shareholders. Stokes, an unlisted entity, is the largest automotive forgings company in the UK with customers such as Koyo Bearings, Land Rover, ZF, Bosch, Visteon, Ford and Jaguar. When contacted, Mr Hemant Luthra, President, Mahindra Systems and Automotive Technologies (MSAT) sector, declined to reveal the cost of acquisition. Stokes, with a turnover of £25 million (Rs 194.4 crore at Tuesday's exchange rate of Rs 77.76 to the pound) for the year ended December 31, 2004, was carrying a "small amount" of debt at the time of acquisition.
Within MSAT's forging business, it will join Amforge Industries' Chakan unit (FY-05 sales of Rs 210 crore), which MSAT had moved to acquire through Mahindra Automotive Steels Pvt Ltd (MASPL) some time ago. Stokes will add 36,000 tonnes of forging capacity to the 35,000 tonnes used at Amforge. Edge in tech: There were significant differences between these two facilities. As a West European company, Stokes had the edge in technology. Mr Luthra said the UK company's yields were 25 per cent higher and die life was twice as much. Its net-shaped forging technology cut the need for post-forging machining, and it had better material handling systems. It also offered customers the ability to track products and was capable of working with micro alloys, which Mahindra Ugine makes. No plan to restructure: On the other hand, the case for continuing any of Stokes' low-value manufacturing in the UK is weak. A definite option for study would be shifting that production to Amforge and using the space so freed up at Stokes for high value manufacturing. "There are no plans to restructure," Mr Luthra said, when asked of the impact of acquisition on Stokes' workforce. MSAT had looked at 5-6 forging companies and short-listed a couple before zeroing in on Stokes. Quality of management and technology were among deciding factors. It was not clear yet which specific M&M arm had acquired the stake in Stokes. But given Amforge's acquisition through MASPL and Stokes too being in the same business, M&M would move towards consolidating its equity stake in the two forging companies in a holding company. "We would like to do something similar for Plexion also," Mr Luthra said. Plexion, in which M&M acquired 88.41 per cent equity in December, works in the realm of computer-aided engineering and is expected to complement the abilities of Mahindra Engineering Services (MES), an MSAT outfit. All-cash deal: The acquisition of Stokes was an all-cash deal. Mr Luthra said funds were available for MSAT's growth. M&M annually generated $175-200 million at the EBITDA (earnings before interest, taxes, depreciation and amortization) level, debt aboard was low and it could dip into the $125-million FCCB issue (floated for growing the auto component business). "I would rather be concerned about the fit of companies being pitched as candidates for acquisition," he said.
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