Maruti Suzuki India's board (MSIL) on Tuesday (12 June) approved a proposal to merge with Suzuki Powertrain India (SPIL).

SPIL, which supplies diesel engines and transmissions to MSIL, is a subsidiary of Suzuki Motor Corporation (SMC), Japan. SMC holds a 70% share in SPIL and the remaining 30% is held by MSIL.

Maruti said the merger would bring its entire diesel engine capacity under single management control: "All key initiatives to strengthen the business, including sourcing, localisation, production planning, manufacturing flexibility and cost reduction can be controlled, monitored and improved by the MSIL management".

It also saw benefits from synergies in areas like finance, capital structuring and administration and a consequent reduction of transaction costs. 

There are no plans to reduce jobs following the merger.

The merger will take place through a share swap and there will be no cash outflow from MSIL. 

The swap ratio has been fixed at 1:70. SMC will receive one share of MSIL (of INR5 each) for every 70 shares (of INR10 each) it holds in SPIL.

MSIL will make a fresh issue of 13.17m shares to SMC in lieu of SMC’s 70% holding in SPIL. After the merger, SMC’s holding in MSIL will rise from 54.2% to 56.2%.

Maruti expects the necessary regulatory approvals and legal requirements for the merger will be completed by the end of December 2012 and will operate a single set of accounts from 1 April, 2013.