Ssangyong Motor names India’s Mahindra & Mahindra as preferred bidder for majority stake

Ssangyong Motor names Mahindra as preferred bidder

SEOUL, South Korea — Cash-strapped South Korean automaker Ssangyong Motor selected India’s Mahindra & Mahindra on Thursday as the preferred bidder to buy a majority stake, a move that promises to give India’s top utility vehicle maker greater global reach.

Three companies — Mahindra, Raghav Industries and Daewoo Bus — submitted binding bids earlier this week out of the six bidders that qualified in June to examine Ssangyong Motor’s accounts and business, Ssangyong said Thursday.

The car maker went into court-approved bankruptcy protection early last year amid falling sales and mounting red ink. It was majority-owned by Shanghai Automotive Industry Corp., or SAIC, one of China’s largest vehicle manufacturers, until SAIC lost management control during the bankruptcy process.

Ssangyong Motor Co., South Korea’s fifth-largest automaker, is far smaller than domestic rivals Hyundai Motor and Kia Motors Corp. It mostly manufactures light SUVs, but also makes a luxury sedan, the Chairman.

“We made our decision after evaluating the offered bidding prices, fund-raising capability, management plans after acquisition, job guarantee for current employees and other terms,” Ssangyong said in a statement.

Mahindra will pay Ssangyong a deposit of 5 percent of the acquisition price it offered and Ssangyong and its top executives will sign a memorandum of understanding with the Indian company by the end of this month.

Ssangyong did not reveal how much Mahindra will pay for the stake, but South Korea’s Yonhap news agency reported, without citing the source of the information, that Mahindra offered $480 million.

The Indian sport-utility vehicle maker will conduct a final due diligence on Ssangyong next month before settling on an acquisition price in October. The final contract is scheduled to be signed in November.

Mahindra & Mahindra has long wanted to be a bigger global player, and executives say Ssangyong’s over 1,200 global dealerships, 7 models and 5 brands will help it access new markets across Europe, Russia and Latin America.

“This deal is a significant move for Mahindra & Mahindra because it takes us into a much bigger league,” said Pawan Goenka, president of Mahindra’s automotive and farm divisions. “Our long-term aspiration is to become one of the world’s top SUV players. This deal brings us closer.”

Mahindra has also been eyeing the U.S. market and analysts say Ssangyong’s technical expertise could help it make more competitive vehicles for tough American consumers.

The company also intends to bring Ssangyong SUVs to India.

Mahindra said Ssangyong will continue to function independently, with Korean management.

Mahindra executives said the offer is part equity and part debt and would wipe out the company’s long-term debt, which was $640 million in December.

“The deal has been structured in such a way that we will be getting a debt-free company,” group chief financial officer Bharat Doshi told reporters.

Datamonitor, a research group, estimates that Mahindra’s cash from operations will be $500 million this year, with cash and noncore investments worth more than $500 million, putting financing of the deal well within reach.

Datamonitor analysts said labor disputes at Ssangyong led to operating losses of over $75 million during the third quarter of 2009, and Mahindra will face challenges managing the company’s “militant trade union.”

Mahindra shares closed up 0.8 percent at 632.7 rupees ($13.4) on the Bombay Stock Exchange, after rising as much as 2.8 percent on the news.

Kinetz reported from Mumbai, India.