Largest automobile maker Maruti Suzuki has decided to merge Suzuki Powertrain India Ltd, the diesel engine and Transmission Company with itself, by entering into a stock swap transaction with its Japanese parent Suzuki Motor, the news reports said.
The swap ratio has been fixed at 1:70 whereby Suzuki will receive one share of Maruti for every 70 SPIL shares. This will take the parent company’s stake to 56.1% from the current 54.2%.
The decision to merge is seen as the bid by Japanese car maker to align the engine manufacturer with expansion plans of Maruti Suzuki, which is planning to increase the production of its diesel powered cars.
The merger will see SPIL being spun into Maruti Suzuki by December this year, in exchange for Maruti Suzuki shares that are worth at about 1,500 crore or $268 million.
Maruti will be issuing fresh 13.17 million shares to close the transaction and thus raising its paid-up share capital by Rs 6.5 crore.
The company said, “It is expected that the necessary regulatory approvals and legal requirements for the merger may be completed by end December 2012. After the merger is given its go-ahead, the books of accounts of Suzuki Power Train will be merged with Maruti Suzuki India with effect from April 1, 2012.”
Shares of Maruti Suzuki surged 3.34% to Rs 1,146.30 at the close of trade at BSE on Tuesday. The merger will also enable Maruti Suzuki to align the expansion of diesel engine maker with its own expansion plans, as the demand for diesel engine cars outpace the petrol fueled cars in India.
At present, Maruti holds 30% stake in Suzuki Powertrain , which supplies 3 lakh diesel engines and transmissions every year to Maruti Suzuki India. The planned merger will consolidate the diesel engine production by getting it under its management control.
Maruti Suzuki Managing Director S Nakanishi said, “We will be able to bring all the diesel engine capacity under Maruti leading to better integration and flexible production based on the market needs.”
The automobile company had declared Rs 1,700 crore investment for a new diesel engine plant at its Gurgaon plant will have a cumulative capacity of 3 lakh units by 2014.
The merger is likely to improve synergies in areas like finance, capital restructuring and administration for Maruti in the long-term.
The carmaker has been facing diesel engine issues even as its diesel model sales rose 38.5% of its total cars sold in May this year from the 24% of its total sales last year.
The company will absorb all the 2,600 employees of the diesel making units under Maruti Suzuki’s 10,000 strong work force and does not have any plans on cutting any jobs.
Maruti Chief Operating Officer (administration) SY Siddiqui said, “We will bring all the employees of SPIL under Maruti Suzuki and also restore parity on the wages and other benefits once the merger is complete.”
Maruti Suzuki is a subsidiary company of Japanese automobile company Suzuki Motor Corporation. It has a market share of 44.9% of the Indian passenger car market as of March 2011.