industry

Ford-Mahindra deal called off due to high costs, pandemic impact


Automakers Ford and Mahindra & Mahindra have called off their deal to form a joint venture company to acquire the former’s India business, citing higher than expected capital requirement and changed business economics due to the impact of the coronavirus pandemic.

The companies on Friday said they amicably reached the decision to not pursue the joint venture as the capital could be redeployed elsewhere. December 31 was the expiration date for the companies to reach a definitive transfer agreement.

Ford will continue to have independent operations in India.

“All the assumptions and scenarios that we had while signing the agreement are very different today,” said Pawan Goenka, managing director of Mahindra & Mahindra.

The deal did not make economic sense after the capital that both companies had to put in got enhanced due to Covid-19-related issues and other global effects, according to Anish Shah, deputy managing director of the Mahindra Group.

“The objectives were not being met and the capital required for the business was much higher, hence we are looking at different ways of collaborating,” said Shah, who is also the group’s CFO.

M&M had talked about investing Rs 1,400 crore as equity into the proposed JV and an equivalent amount as the debt, and this is just by Mahindra alone–a total of about Rs 3,000 crore would have been the investment in the JV.

“We would have had to invest a higher number if we would have gone ahead with the JV–that is effective cash flow we would save by not going ahead with the JV,” said Shah.

Read More   Look for investment grade bonds to shine in '19, says Ajay Rajadhyaksha

The alliance was announced in October 2019 by the chairmen of both companies after months of deliberation. A new joint venture company was to acquire Ford’s India business in which Mahindra and Ford would own 51% and 49%, respectively.

A decision on which joint projects and technology-sharing deals will be kept alive is yet to be taken.

The money saved could be reallocated to other important projects, especially electric vehicles (EVs), said Rajesh Jejurikar, executive director, M&M. “We all realize the EV space is going to be the future. We would want to play out a strategy to lead in the EV SUV space,” said Jejurikar.

The shelving of this deal will also put on hold M&M’s international expansion plans for the short term and it will focus on the domestic and other India-like markets it is already present in.

“We do have a strong domestic strategy and we are very well equipped to make a mark. We believe with our ambition of playing in the core SUV business, strengthening the Mahindra brand DNA, our current platform strategy will see us through,” said Jejurikar.

Meanwhile, Ford plans to have a range of crossover SUVs in India. The company headquarters has already approved investment for developing two compact SUVs – a new generation EcoSport codenamed B744 and a Hyundai Creta rival codenamed B722. Work on these is on at Ford’s product development centre in Tamil Nadu.

Even as Ford builds a portfolio for the domestic market, the role of exports will be very critical to ensure that it utilises both its factories optimally. It is contemplating export of another SUV for the US market from India which will ensure a better operational leverage in the future. Yet it may have to resort to offering its capacity for contract manufacturing, say people in the know, to ensure viability of operation.

Read More   Loans from NBFCs to developers halved in FY19: Report

To be sure, with almost $900 million in write-off from Indian operations taken before signing an agreement with Mahindra, Ford India has a cleaner and better balance sheet to compete in the Indian market.

Its agreements with Mahindra for the supply a BS-VI petrol engine for the EcoSport and a C-segment SUV based on Mahindra’s proprietary platform codenamed W601 still stands and a call will be taken within the next quarter.

The two companies had signed five different agreements under “Project Black” in 2018. Apart from sharing the engine and SUV platform, the third area of cooperation was developing a connectivity platform, which both partners have already implemented. The other two agreements have been shelved for several months now due to viability issues.





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.