New Delhi: India’s largest auto parts maker Motherson Sumi Systems Ltd (MSSL) has offered Rs4,150 crore to acquire Finland’s PKC Group Oyj as it works towards becoming an $18 billion company.
The public tender offer to buy out some or all the shareholders was made at a 51% premium to PKC’s closing stock price on Thursday on the Nasdaq Helsinki stock exchange. The transaction has been approved by the boards of both companies.
PKC is a leading supplier of wiring harness to companies that make heavy- and medium-duty commercial vehicles and locomotives across North America, Europe, Brazil and China. It ended 2016 with revenue of €846 million (around Rs6,150 crore).
The acquisition will be made through a 100% subsidiary of Noida-based MSSL. The transaction is expected to be completed by the end of March 2017.
MSSL chief financial officer G.N. Gauba said in an interview that the acquisition will be funded by Rs2,600 crore raised through share sales to financial institutions and a preferential allotment.
The company also has around Rs2,610 crore of cash on its books on a stand-alone basis, he said.
On a consolidated basis, it has cash holdings to the tune of Rs5,940 crore but it also has debt of Rs8,115 crore, at the end of the September quarter. On a standalone basis, it has debt of Rs311 crore.
“The prospect of two global teams coming together and the synergies that will be brought about is very exciting to us. It will allow us to create huge value for our customers and to service our customers in additional locations in the world,” said Vivek Chaand Sehgal, the 60-year-old chairman of MSSL.
Sehgal set up a silver trading company, Motherson, with his mother in 1975.
With the money he made from trading in silver, Sehgal set up a factory to make wires but it bled. Sehgal’s fortunes turned in 1983 when he signed up as a supplier to what is today India’s largest car maker, Maruti Suzuki India Ltd.
Between 2002 and 2016, Motherson Sumi has acquired 14 companies in the auto parts space. Its revenue expanded from Rs100 crore in 1999-2000 to Rs38,853 crore in 2015-16.
MSSL is also in the business of wiring harness. The proposed acquisition of PKC would help expand its presence in the commercial vehicles segment. MSSL claimed that there is minimal overlap between existing operations of the two companies in terms of a geographical presence.
An analyst said he was concerned about MSSL’s debt at the group level.
“As a group, they are in debt. Crucial question will be how much debt will come on the group’s books (because of the acquisition),” the analyst said on condition of anonymity.
“The other problem in these Scandinavian countries is that labour regulations are very tight. The financial obligation for that will be very high,” the analyst added.
MSSL’s Gauba said neither is a concern at the moment. PKC has a debt of around €47 million (around Rs341.7 crore), Gauba of MSSL said.
Shares of PKC were trading up 50% at €23.40 in early trading in Helsinki on Friday. Motherson Sumi shares rose 0.18% to Rs326.40 at the close of trading on the BSE on a day the benchmark Sensex fell 1% to 27,034.50 points.