Mahindra Ssangyong Acquisition, 2011

Bharat Singh-09 Pankaj Arya-22 Rajat sharma-25 Puninder Bhatia-24 Gaurav Shah-13 Neha Singh-20

Company Brief- Mahindra
• Part of Mahindra Group
• Mahindra & Mahindra (M&M) : one of India’s largest auto manufacturer • Headquartered in Mumbai • Genesis: 1945 in Ludhiana -Started with assembly of Willy’s Jeep in India under license (1947) • Ranked 21st in Fortune 500 India in 2011 • Product portfolio now includes: -2 wheelers, SUVs, Sedan, School buses, LCVs, HCVs, Military Vehicles, Farm equipment

• Foray into global markets SAC, PRC, Egypt, Brazil

Company Brief-Ssangyong
• Genesis: 1954 in Korea • Headquartered in Seoul • Product portfolio includes: -Premium SUVs , RVs, luxury sedans, Pick ups, Vans • Started as 2 different companies • Ha Dong-hwan Motor Workshop (1954) and Dongbang Motor Co (1962) ;Merged into Ha Dong-hwan Motor Co (1963) • Acquired by Ssangyong Business Group in 1986 • Technology partnership with Daimler-Benz in 1991 to develop SUVs

• Economies of scale • Low cost combined component sourcing • Economies of scale for global sourcing • Reduction in time to market • Economies of scope • Joint R&D efforts • Sharing of product platforms, engines and powertrains • Reduction in product development time • Mahindra now has greater access to EU, Russia, SA, ME, Asia • Ssangyong has access to newer emerging markets • Mahindra also access to new products, established distribution channels

The Merger: Operating Synergy

The Merger: Financial Synergy
• The acquisition helped lower Ssangyong lower its D/E ratio and improve its cost of capital • Lower CAPEX requirements to support existing operations • Major tooling investments and product development costs had already been incurred • Current workforce (after slashing by 1/3rd) more than adequate to meet existing and upcoming demand • Diversification • New products and current markets • New products and new markets

The Merger:
A friendly takeover
• Ssangyong was bankruptcy protected in 2010 after running into financial losses since 2000 • Ssangyong was not new to acquisitions :

1. 1997 : Daewoo Motors bought 51% stake, sold it off in 2000
2. 2004 : SAIC took 51% stake 3. 2009 : Ssangyong was put into receivership after recording US $ 75.42 Mn loss and worker strikes 4. 2010 : In April, Ssangyong released a statement citing interest of 5companies in acquiring it • Acquisition was approved by South Korea’s Free Trade Commission

A horizontal merger:
• Ssangyong had premium SUVs and Sedans. M&M had entry level SUVs and acquisition of Ssangyong completes M&M product range • Gave M&M added benefits of network externalities • Cost savings through economies of production, sales & distribution, logistics etc

The Merger: Deal Structure
• Ssangyong under US $400 Mn debt in 2010 • Mahindra emerged as the preferred bidder among 5 companies • M&M, Ruia Group, SM Aluminium, Seoul Investments, Renault Samsung

Ssangyong under debt of US $ 400 Mn (2010)

M&M pays US $ 463 Mn to repay Ssangyong’s debt

M&M gets 70% stake (US$378 Mn in new shares);M&M assumes US $ 85Mn debt in its B/S

The Merger: Deal Timeline

Post Merger Development:
Joint production • Have started joint development of smaller engines for use in both companies • Design work on Euro 6 engines in progress Joint sourcing • Have started joint sourcing of components for both companies Current market, new product • Mahindra has started offering the Ssangyong Rexton in the Indian market asa premium offering New markets, new products • M&M readying new products for Brazil, Australia, US , European markets

Gains to the target and the acquirer
• Complementary Competencies leading to complementary benefits • Mahindra A. Sourcing, B. Marketing, C. Financially more stable D. Low-end SUV • Ssangyong A. Technology, B. Exports to 35 countries, C. High-end SUV

Post-acquisition Strategies
• Joint R&D and production strategy: a) Began developing a family of six small engines from 1 litre to 1.6 litres. b) The three and four-cylinder engines will be used by both companies. • Joint Sourcing Strategy: a) Finding the right sources at an optimum cost, the right technology and quality for our requirements

Benefits to shareholders post acquisitionSsangyong :
• • • • • • Cash crunch for Ssangyong was sorted out Complementary Competencies leading to complementary benefits Labour Problem was sorted out Realize long - term cost synergies Help Ssangyong to establish a market for its high end SUVs in India Ssangyong would receive support in setting up assembly bases across BRIC nations • Distribution network of Mahindra and Mahindra would help Ssangyong to sell its products in South Africa • Slowdown in the Korea and China can be overcome be sales of new models in India

Benefits to shareholders post acquisitionM&M:
• Access to higher-end SUVs, R&D capabilities and a multination dealer network especially in European and South East Asian countries • M&M can now sell its product in Russia through Ssangyong distribution network. • The joint sourcing and product development strategies.

Mahindra & Mahindra has appreciated 20.3% CAGR while the benchmark BSE Sensex has increased a mere 5.13%

Performance of Ssangyong - Post Deal
Stocks had Fallen by Half

M&M is finding it hard to turn the company around

Recent Happening
India specific happenings: • Mahindra started reaping direct benefits from the deal in India • Rexton was launched with price of 17.7 Lac for base version and Top model with 19.7 Lac • Mahindra invested Rs.630 million at Chakan Plant to assemble Rexton

Recent Happening- Contd.
Global Happening: • M&M is planning to enter Brazil, Australia and Italy with the Ssangyong range

• Mahindra’s main focus is to enter into Chinese market

Learnings:
• The way a financially unstable company can be acquired debt free, by using acquisition value to acquire majority stake -Bargain that is only possible when acquiring a distressed company • The steps taken by both parties i.e. formulating joint sourcing and product development strategies to actually materialize the synergies estimated. • The valuation of the deal will depend not only the standalone value but the potential value created by the joint organization. Here, on standalone basis seems that Mahindra overpaid but on over all analysis the price is okay.

Learnings: Contd.
• Sometime it is better not to completely integrate companies from two different cultures. Here, Ssangyong was allowed to operate as a separately listed company with Korean managers as M&M was interested mostly in product portfolios and R&D capabilities only. This approach has saved lot of integration issues. • The steps involved in the takeover, right from due diligence, board and shareholder approval to structuring the deal to suits all stakeholder needs. • The process of obtaining from the creditors, both secured and unsecured and in the case of a distressed company, from the bankruptcy courts as well.

Thank You!

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