Mahindra & Mahindra (M&M) and Navistar International have announced that Mahindra intends to purchase Navistar group’s stake in Mahindra Navistar Automotives (MNAL) and Mahindra Navistar Engines (MNEPL).
Following the purchase, both MNAL and MNEPL would become wholly owned subsidiaries of Mahindra. Mahindra would take complete ownership of operations and continue to sell MNEPL and MNAL products. The sale requires regulatory approval in India, is subject to the conclusion of definitive agreements, and is expected to be completed in early 2013.
The terms of the proposed transaction call for Mahindra to pay approximately INR1.75bn (US$33m) for Navistar group’s stake in both ventures. The agreement allows Navistar to continue sourcing components from India while Mahindra would continue to provide engineering services to Navistar. Navistar group would continue to support M&M through a license agreement and extend necessary support to MNAL and MNEPL for the purposes of business continuity.
As part of its “drive to deliver” turnaround plan launched in August, Navistar has been conducting an analysis of all of its businesses and programmes to determine their return on invested capital (ROIC) and identify areas for improvement. Based on this business environment, Navistar has determined that it needs to redirect its efforts to other initiatives that more quickly contribute to the company’s goal to improve its ROIC.
“Since it was established in 2005, Mahindra Navistar Automotives has created a niche for itself in the Indian CV industry,” said Dr. Pawan Goenka, president, automotive and farm equipment sectors, Mahindra & Mahindra. “MNAL has set up a world class dealer and service network for trucks, which coupled with synergies with Mahindra’s dealer network gives us a significant opportunity to grow our presence in the truck market. In addition, the product has been well accepted as is evident from our high-ranking in the TNS customer satisfaction survey. M&M is committed to the success of the truck business. We acknowledge the contribution made by Navistar to this venture thus far and appreciate their support for business continuity after they exit the business.”
“While the Indian market has not expanded as we had originally expected and industry challenges there continue in the near term, we still see promise in India going forward. But given Navistar’s 2013 priorities, our capital and focus needs to be allocated to other business opportunities in the near term,” said Troy Clarke, president and chief operating officer, Navistar. “Mahindra has extensive experience and knowledge of the Indian automotive sector and they are best situated to devote the time and resources required to capitalise on future opportunities in India.”
Navistar and Mahindra entered into the MNAL joint venture in late 2005 to manufacture trucks and buses in India, source components and provide engineering services for the design and development of Navistar vehicle products. The MNEPL joint venture was formed in 2007 and began producing engines in 2010.