Going global: Mahindra races for Aston Martin
MUMBAI (Reuters) - Sports car maker Aston Martin may look like a shiny trophy that makes an awkward fit for Mahindra and Mahindra (MAHM.NS), the world's biggest tractor maker, but it would help the Indian group realise a long-standing ambition to be a global player.
Despite its efforts, Mahindra has had a hard time building a presence outside India, where its boxy jeeps and trucks are the top sellers in the utility market.
"He wants to get those iconic brands to raise the group's profile in the international market," said the Mumbai-based M&A head at a U.S. bank who has worked with the group.
"He" is Anand Mahindra, the 57-year-old group chairman and grandson of its co-founder, who has turned the diversified Mahindra group into a $15 billion Indian powerhouse, partly through deals, but has been unable to replicate that success overseas.
Mahindra is the front-runner for as much as half of Aston Martin, the barely profitable 99-year-old maker of British luxury cars made famous in James Bond movies, sources said.
Investment Dar of Kuwait, which led an acquisition of Aston Martin from Ford Motor Co (F.N) in 2007, denied on Sunday that it was reviewing two bids for 50 percent after sources said Mahindra had outbid Italy's InvestIndustrial.
Mahindra's offer for up to half of the company is unlikely to top $400 million, and a deal could be sealed as soon as this week, one person with direct knowledge of the matter said.
For Aston Martin, Mahindra would bring deep pockets and global ambition that could help the British firm expand beyond the 4,200 cars it sold in 2011. As significant, though, is what it fails to bring to the table: relevant technology, marketing savvy and a distribution network.
For Mahindra, Aston Martin would add an iconic and under-exploited brand without stretching its balance sheet, giving it another toehold into the global market.
As part of a strategy to raise its profile overseas, Mahindra last year paid $460 million for South Korea's money-losing Ssangyong Motor Co. That deal was seen as a more natural fit, since both companies are SUV specialists.
While the company has managed to crack the lucrative U.S. market with tractors, it has not with cars, recently scrapping a six-year push to sell a pickup truck there. Of Mahindra's own-branded passenger vehicles, just 7 percent are sold abroad.
"With Aston Martin, entering the U.S. market, the customer is likely to look at you much more seriously as compared to if you are just an Indian carmaker who also owns Ssangyong," said Deepesh Rathore, managing director for India at IHS Automotive.
Investment Dar wants to sell Aston for at least what it paid plus commitment of subsequent equity injection, or $1.1 billion for the whole company, Bernstein Research wrote in a November 14 report, citing industry sources and calling that price high.
With his neat moustache, perfectly-coiffed hair and elegant suits, the company's film-buff chairman with a Harvard MBA looks like he could play a CEO in a movie.
Unlike the chieftains of some of India's more insular family conglomerates, the outgoing Anand Mahindra is active on Twitter and is a regular at the World Economic Forum in Davos, a meeting place of business czars and government leaders.
As a dealmaker, he eschews drama, avoiding costly bidding wars and mostly sticking to deals that cost less than $1 billion and don't require heavy debt.
In 2008, he walked away from bidding for luxury carmaker Jaguar Land Rover. Indian rival Tata Motors ended up paying $2.3 billion in a deal that looked expensive at the time but has proven to be a blockbuster success.
"Anand doesn't go by emotion or ego in these matters," said an M&A banker with a foreign bank in Mumbai.
Even as the company vies for Aston Martin, it is eyeing a couple of smaller European auto component makers that are on the block due to mounting losses, said another source.
"They don't go after deals proactively and end up overpaying, and would rather wait for the stressed assets to come to the market," the banker said.
"They are focused on building a little empire of prized assets instead of shock-and-awe kind of deals."
In 2009, its Tech Mahindra (TEML.NS) software arm bought Satyam Computer Services, which was brought to its knees by its founder's dramatic confession of accounting fraud, for about $350 million. Tech Mahindra stanched the bleeding at Satyam and the deal has put it into the top five of Indian IT outsourcers.
Earlier this year Mahindra was interested in buying at least part of Swedish carmaker Saab Automobile, later bought by a consortium, sources said. It was also reported to be eyeing bankrupt U.S. aerospace manufacturer Hawker Beechcraft.
"They are very portfolio-centric, opportunistic, in their M&A strategy. They believe in zeroing into a stressed situation and cleaning the mess quickly so that you can capture the value," said the investment banking head with a European bank.
Not every deal has been a winner, and past attempts to build a global presence have delivered mixed results.
French carmaker Renault (RENA.PA) bailed out of a loss-making joint venture with Mahindra in 2010 after disappointing sales of their no-frills Logan sedan, which was launched in 2007 amid much hype and a hope to export the vehicle.
Its two-wheeler business, which Mahindra launched in 2008 through its acquisition of Kinetic Motor for about $20 million, also has not been able to make a significant dent in the market.
Mahindra's interest in Aston Martin has caused plenty of head scratching in financial and automotive circles.
"You shouldn't buy anything that is available at a cheaper price, if it's not a right fit. That's the main concern with Mahindra's bid for Aston Martin. I am not sure if it's worth their money and time," said the executive at the European bank.
Rathore of IHS said Aston Martin would require plenty of additional investment. "It doesn't make sense to have a trophy like Aston Martin because it's quite an expensive trophy to have," he said.
"They will need to look at range expansion and new product development. They can't escape from that." (Editing by Jeremy Laurence)
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