For Mahindra & Mahindra, the acquisition would pave way for entering into the two-wheeler business

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the area it has been looking at for some time now.
Putting up a greenfield project is much more expensive and time-consuming than acquiring a readymade firm like Kinetic Motor since it has been in business for over three decades. Besides, Kinetic
offers a full product portfolio ranging from mopeds to scooters to motorcycles, sources said.
Kinetic Motor, however, was incurring losses for some years now. The company had recorded a net
loss of Rs 18 crore in the fourth quarter ended March 31, 2008, slightly below from the third quarter of
the previous fiscal when it had posted Rs 19.75-crore net loss.
Kinetic Motor's promoters, the Firodia family, owns 54.83 per cent in the company. The firm needs
funds to revamp its operations and it was looking for raising anything between USD 100-125 million.

M&M will hold 80% stake in the new firm against a payment of Rs 110 crore. the minority shareholders would have had an exit option by subscribing to the mandatory open offer from M&M. It is understood that the option price is "substantially higher" than the price being paid by M&M now. However. In that case." he adds. KMCL will hold the remaining 20% stake in the new entity. vice-president of Ambit Corporate Finance (advisor to KMCL). according to her." said another source close to the transaction. post-deal. there is no official word on this. "We have sufficient internal generation. However. will utilise the proceeds of the transaction to retire its debt estimated to be around Rs 60 crore. as things stand now. A top source at M&M says the new entity does not require immediate funds infusion. We can also meet working capital requirements by borrowing from banks. . the new company will go for listing once it gathers the critical mass. In addition. does not bring any immediate upside to the KMCL minority shareholders. And KMCL will be one of the beneficiaries of this. MD of KMCL. KMCL has the put option to sell its stake in the new company to M&M after seven years. the transaction will help KMCL emerge as a debt-free company and thereby. The question some minority shareholders might raise is whether KMCL should have sold a majority stake to M&M. In the case of an outright sale of Kinetic Motor.Mahindra & Mahindra's proposed acquisition of the assets of Kinetic Motor Company (KMCL) will not require an open offer to minority shareholders of KMCL. says the banker. says the structure of the deal is value-accretive to KMCL shareholders. It is widely believed that M&M will induct a foreign equity partner into the two-wheeler firm in a year or so. Aswin Bhuwania. Also The transaction. the valuation of the new company will certainly go up. This puts the valuation of KMCL's two-wheeler business at Rs 137 crore. M&M would have got control of KMCL's real estate assets which is not the case under the proposed transaction. They will get dividends from the new company against their combined 20% shareholding in it. This is because the structure of the deal ensures that there is no change in management control of KMCL although the main business of the company — two-wheelers — is being transferred to a new entity which will run the two-wheeler business. says it's a win-win deal. KMCL shareholders will stand to gain in the long run if it wants to pull out of the new company. KMCL will be left with real estate assets worth Rs 30-40 crore. A banker close to the transaction says given its current market capitalisation of Rs 45 crore and negative net worth. Sulajja Firodia Motwani. improve its capability to leverage its balance sheet for new ventures. The remaining part will be invested in KMCL which would utilise the money to foray into new ventures. Also. "So. KMCL. however. a straightforward sale would have fetched KMCL far below the amount it is to get now from M&M through the asset transfer route.

65. the stock market has given a thumbs-up to the deal. The KMCL stock on Thursday gained nearly 5%. Only time will tell whether M&M can succeed in India's crowded two-wheeler market. the maximum permissible limit. It gained 17. . However.Some observers are not so certain about the success of the new company.34% in a week. to close at Rs 21.