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HMT snubs M&M offer - Views on News from Equitymaster
 
 
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  • Sep 23, 1999

    HMT snubs M&M offer

    As reported by financial newspapers, Hindustan Machine Tools (HMT) has rejected Mahindra & Mahindra's (M&M) bid for 51% equity stake in its tractor divisions. The deal has fallen through due as the final price offered by M&M was not acceptable to HMT.

    M&M is the leader in the utility vehicle segment (61% market share in July 1999) and the tractor segment (28% market share). It is also engaged in the manufacture of light commercial vehicles (LCV). The M&M group also has interests in information technology (IT) and realty.

    M&M had earlier bid Rs 1.38 bn for 51% stake in HMT's tractor division (total capacity 20,000 units). But after a due diligence M&M lowered its offer price on account of certain hidden liabilities in HMT's balance sheet. The lower price was not acceptable to HMT and it is once again scouting for partners for its tractor division. Earlier, HMT had received proposals from Escorts, Eicher and L&T John Deere.

    HMT's rejection of M&M's offer will put a damper on the latter's ambitions to become the largest global tractor manufacturer (in volume terms). The company has already firmed up plans to set up tractor assembly units in countries like Europe, Turkey, Egypt and Latin America to enhance its presence outside India.

    Although its offer for HMT's stake has been turned down, M&M will continue to scout for other deals to increase market share in the country. Although it may succeed in doing so, the investment could result in higher borrowing and interest costs, and eat into its operational gains as it did in FY99.

    Now that the deal has fallen through, there is a likelihood that the other contenders, Escorts, Eicher or L&T, could gain control of HMT's manufacturing facility. The company that finally buys a stake in HMT will function on a higher base, which will go up by a further 30,000 units in the next year.

    Market view:

    Notwithstanding M&M's 26% YoY growth in tractor sales in July 1999, analysts have flagged a 'SELL' on M&M as they are concerned about its high tractor inventory.

     

     

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