In an intricate deal, the Japanese tractor major Kubota Corporation will invest up to Rs 9400 crore to become the majority stakeholder in India’s fourth-largest tractor maker, Escorts, the two companies said.
After consummating the complex three-tier deal, Kubota Corporation’s stake will increase to 53.5% from the current holding of 9%.
In a statement to the Bombay Stock Exchange, Escorts stated that Kubota stake would be increased through the two tranches. In the first tranche, Escorts will give preferential allotment to Kubota at Rs 2000 per share, infusing Rs 1870 crore. In addition, Kubota will make an open offer at a preferential allotment price of Rs 7500 crore.
The current promoter Nanda family holdings continue to remain unchanged after the transaction at 11.6%. The entire process of preferential allotment and open offer is expected to complete by March 2022.
JM Financial acted as the financial advisor, Transaction Square acted as the transaction advisor, and DMD Advocates acted as the legal advisor to Escorts Limited.
After completing the transaction, Kubota Agricultural Machinery India and Escorts Kubota India are to be merged with Escorts.
Explaining the strategic rationale, the statement from Escorts stated that the deal would create one of the largest Indo-Japan agriculture collaborations to attain global leadership in the Farm Equipment Sector.
Escorts will be the exclusive vehicle for the manufacture and sale of certain products in India and for sourcing from India (existing and products to be jointly developed in future. The Indian tractor maker will also house a major R&D and Innovation Centre to offer products and new alternative technologies. It aims to seamlessly integrate Kubota’s global reach and business processes with Escorts’ proven frugal engineering and manufacturing capabilities.
Nikhil Nanda, CMD, Escorts Limited, said the company is delighted to embark on a global leadership journey in agri-machinery in partnership with Kubota Corporation.
“This will enable both companies to enhance the value they have created by leveraging each other’s strengths – be it in technology, market access, manufacturing processes for engineering excellence. The transaction will catapult Escorts to a different level of expertise, size and growth. I am proud that Escorts has taken the leap into the future with this partnership.”
Speaking on the deal Yuichi Kitao, President and Representative Director, Kubota, Japan, said, "The journey between Kubota Corporation & Escorts Limited, which began in 2016, has reached a major milestone today with the signing of a historic agreement. The combined entity and the larger collaboration will provide advanced farm mechanisation solutions to address global food security & enhanced farm productivity. We are extremely proud and excited to unite for the future as One Company. "
Post the deal, Kubota will provide affordable and accessible tractors, utilizing Escorts’ know-how, and Kubota’s decades-old product development knowledge will help the latter improve its quality and productivity in the R&D, procurement and manufacturing functions.
One of the biggest areas where Kubota will leverage Escorts capabilities is its distribution and service reach, allowing both the partners to expand the product portfolio ranging from high-performance tractors to basic tractors and the geographical reach.
The Japanese tractor maker will consider developing and manufacturing basic combine harvesters and construction machinery targeting India, and other emerging markets post the deal.
Nikhil Nanda will continue to serve as Escorts’ CMD. After the transaction, he will be appointed as the Senior Managing Executive Officer and General Manager of Value-Innovative Farm and Industrial Machinery Strategy and Operations at Kubota.
Also, Nikhil Nanda will be appointed as a Director of Kubota Holdings Europe B.V., a subsidiary that oversees the European machinery business.
Experts say the Kubota takeover is positive for Escorts, resulting in technology/new product support for Agri and Construction Equipment divisions. Exports can also receive a boost because of the widening product portfolio and utilization of the global Kubota distribution network.