India's Mahindra group in second China tractor deal

India's largest tractor manufacturer pays $26 million for 51% of China's Yancheng Tractors, in a deal complementary to M&M's existing investment in Jiangling.
Indian vehicle manufacturer, Mahindra & Mahindra announced yesterday it will acquire majority stake in the tractor business of ChinaÆs Jiangsu Yueda Yancheng Manufacturing Company.

Yancheng Tractors is a Chinese state-owned-enterprise which was established in 1959. Its tractor-related assets and current liabilities have been transferred to a new joint venture formed between M&M and Jiangsu at a valuation of Rmb335 million ($48.76 million). M&M will acquire majority interest represented by 51% equity interest in the JV for an outlay of $26 million. In 2007 YanchengÆs ôHuanghai Jigmaö brand of tractors was the third largest selling in China in volume terms, the two companies said in a joint statement. Yancheng is also a large exporter of tractors with a footprint in more than 60 countries.

M&M is IndiaÆs largest tractor manufacturer. The Mahindra groupÆs farm equipment business also has plants in USA, China and Australia. Across all its plants, M&M has a capacity to produce 1,50,000 tractors a year and a dealer network of 800 dealers globally.

M&MÆs prior exposure to China JVs is via Mahindra China Tractors, a collaboration between the Jiangling Motors Company and M&M. Mahindra China Tractors started operations in July 2005. It currently has a capacity to manufacture 8000 tractors intended for both China and other overseas markets.

The Yancheng deal was complementary to the existing Jiangling JV as Yancheng broadens our product range, the combined dealer base considerably strengthens our distribution network and our position in the export market is stronger, said M&M is a filing with the Bombay Stock Exchange yesterday.

Spurred by incentives from the government and the increased purchasing power of the countryÆs farmers, ChinaÆs tractor manufacturing has grown from around 56,000 units in 2003 to 220,000 units in 2007, a CAGR of 40%.

Along with a number of other Indian business groups, the Mahindras are also on a globalisation spree and have been pursuing cross-border M&A opportunities. It is speculated that M&M was also interested in an early stage in Ford MotorsÆs Jaguar and Land Rover Assets which were acquired by Tata Motors for $** earlier this year. There is also media speculation that M&M could be a bidder for General MotorsÆ Hummer brand which is expected to be put up for sale, but Mahindras have not confirmed any interest.

M&M was advised by Kotak Investment Banking with legal advice provided by King & Wood.

M&MÆs equity shares lost 2.56% on the BSE to close at Rs568.10 ($13.09) yesterday as most automobile stocks traded weak. The broader index, the Sensex was volatile and closed down half a percent at 14,646.

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