Maruti Suzuki to merge with Suzuki Powertrain
In a move that will bring all diesel engine manufacturing facilities of Maruti Suzuki India Ltd (MSIL) under a single management, the country’s largest auto maker on Tuesday approved a proposal to merge group unit Suzuki Powertrain India Ltd with itself.
After the merger, Japan’s Suzuki Motor Corp’s stake in MSIL will go up to 56.2 per cent from the current 54.2 per cent. The merger will be effected through a share swap. There will be no cash outflow from Maruti Suzuki India.
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“With the merger, MSIL will be able to bring its entire diesel engine capacity under a 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", the company said in a statement after its board okayed the merger.
Suzuki Powertrain, which is a 70:30 joint venture between parent Suzuki Motor and the Indian subsidiary MSIL, supplies 300,000 diesel engines and transmissions to the company annually.
According to the understanding, the share swap ratio has been fixed at 1:70. Suzuki Motor will receive one share of MSIL of Rs 5 each for every 70 shares of Rs 10 each it holds in Suzuki Powertrain. MSIL proposes to make a fresh issue of 13.17 million shares to Suzuki Motor in lieu of its 70 per cent holding in Suzuki Powertrain.
The necessary regulatory approvals and legal requirements for the merger are expected to be completed by December 2012. Once the merger is approved, the books of accounts of Suzuki Powertrain will be merged with MSIL effective April 1, 2012.
“The merger promises multiple benefits specially when we consider increasing dieselisation of the Indian car market. It will help in bringing down costs and also providing more flexibility while meeting fluctuations in demand in the market," said Shinzo Nakanishi, managing director and chief executive officer, MSIL.
Nakanishi added the merger would enable the company to have a cohesive diesel strategy as it would provide synergies in finance and capital.
There are no plans to reduce jobs following this merger. Suzuki Powertrain currently has 2,592 employees, all of whom will be absorbed into MSIL.
Suzuki Powertrain's turnover in the last financial year stood at Rs 4,550 crore, while it recorded a net profit of Rs 150 crore. The company has a debt of Rs 550 crore, which will now go into MSIL’s book.