Ending months of discussions, Mahindra Group on Monday agreed to buy Italian car designer Pininfarina SpA in a transaction that will help India’s largest maker of sport utility vehicles boost its design and styling capabilities.
Mahindra and Mahindra Ltd and affiliate Tech Mahindra Ltd, through a special purpose vehicle (SPV), have agreed to buy a 76.06% stake in Italian car designer Pininfarina SpA, for €25.3 million (around Rs.186.7 crore), the group said in a release.
The SPV would also make an open offer to public shareholders of Pininfarina for the balance 23.94% stake, Mahindra and Tech Mahindra said in a joint statement. In addition, the SPV will infuse €20 million into Pininfarina by way of a rights issue.
As part of the composite deal, Mahindra and Tech Mahindra shall also provide a corporate guarantee not exceeding €114.5 million to the lenders, creditors and lessor of Pininfarina.
The cost of the acquisition would be at a price of €1.1 per share, which would be funded by Mahindra and Tech Mahindra in the ratio of 40% and 60%, respectively..
The debt-laden Pininfarina has designed cars for Ferrari, Maserati, Rolls-Royce and Cadillac. The Cambiano-based firm has been unprofitable for 10 of the past 11 years and has been battling high levels of debt.
On 12 November, Pininfarina had said that its parent had presented a draft business and financial plan, drawn up jointly with Mahindra, to the lending institutions. It added that the new plan would ensure the financial stability and recapitalization of the parent and the group for the foreseeable future.
“Net financial debt at the end of 2015 is expected to worsen compared to 31 December 2014, due principally to net working capital trends and the accumulated unrealised losses resulting from the measurement of financial liabilities at amortized cost,” the ailing Italian firm had said.
The transaction, which is subject to several regulatory approvals, is expected to close within the first quarter of 2016.
“Mahindra and Tech Mahindra have also signed definitive agreement with the lenders, creditors and lessors of Pininfarina to restructure the existing debt of Pininfarina,” Mahindra said in a statement.
Pininfarina will continue to remain an independent company, listed on the Milan Stock Exchange, with Paolo Pininfarina continuing as the chairman of its board.
Pininfarina’s legendary brand status will allow Tech Mahindra access to relationships the iconic designer has nurtured with the best in the world over its 85-year history, including with Ferrari, Alfa Romeo, Maserati and Peugeot. “This (acquisition) will mean an opportunity for Tech Mahindra to influence product conceptualisation and design and styling through Europe’s best-in-class design house,” the joint statement said.
Tech Mahindra will gain a critical foothold in key, early-stage conversations in the automotive sector and other verticals along with the benefit from the designer’s focused presence in Italy and Germany.
For Pininfarina, the acquisition will mean an ability to leverage Tech Mahindra’s presence across 60 countries and access to about 780 customers.
Mahindra Group chairman Anand Mahindra said "Pininfarina will add enormous value to Tech Mahindra's portfolio of engineering services. But just as important is the fact that the legendary high-end design credentials of Pininfarina will significantly enhance the design capabilities of the entire Mahindra Group. Given the increasing design sensibilities of today's consumers, product design will greatly influence customer choice and experience, and hence our success."
Paolo Pininfarina, chairman of Pininfarina SpA, said "The company is joining hands with a $3.9 billion technology partner (Tech Mahindra) and part of the $16.9 billion Mahindra Group, which will not only strengthen the firm’s Italian identity but will open more doors." Analysts are, however, sceptical about the benefits that might accrue to Mahindra group companies.The acquisition is unlikely to be materially accretive to the prospects of both Tech Mahindra and Mahindra, said a senior analyst with a domestic brokerage, requesting anonymity.
“Mahindra does not have sufficient projects in the pipeline to gainfully employ Pininfarina designers. Mahindra and Tech Mahindra will have to seek external business opportunities,” he said citing Mahindra’s past design house acquisitions.
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