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Kubota Corp eyes majority shareholding in Escorts, picks up additional 5.9 pc stake for Rs 1,873 cr

Kubota Corp eyes majority shareholding in Escorts, picks up additional 5.9 pc stake for Rs 1,873 cr

Published:18 November 2021

Farm machinery major Escorts Ltd and Kubota Corporation on Thursday announced a deal under which the Japanese partner will acquire an additional 5.9 per cent stake the Indian firm for Rs 1,872.74 crore, paving the way for the latter to become a majority stake holder for which it could invest nearly Rs 10,000 crore.

New Delhi | Farm machinery major Escorts Ltd and Kubota Corporation on Thursday announced a deal under which the Japanese partner will acquire an additional 5.9 per cent stake the Indian firm for Rs 1,872.74 crore, paving the way for the latter to become a majority stake holder for which it could invest nearly Rs 10,000 crore.
In a multi-structured deal, Kubota will increase its stake in Escorts to 14.99 per cent after a preferential issue of 93.64 lakh equity shares at an issue price of Rs 2,000 per share, aggregating to Rs 1,872.74 crore. It will become a joint promoter in Escorts.
Kubota, which currently has 9.09 per cent stake in Escorts, will then make an open offer to the public shareholders to acquire up to 26 per cent of the share capital in accordance with SEBI regulations at the same price as the preferential issue, Escorts said in a statement.
Later in a separate regulatory filing, Escorts said Kubota Corporation is making an open offer to its public shareholders to acquire up to 3.75 crore fully paid-up equity shares representing 26 per cent stake at a price of Rs 2,000 per share, aggregating to Rs 7,498.31 crore assuming full acceptance.
In the event of the open offer being fully subscribed, Kubota's stake in Escorts would increase to 44.80 per cent after the first capital reduction.
As part of the deal, there will be selective share capital reduction of the firm by cancelling and extinguishing all the residual equity shares currently held by the Escorts Benefit and Welfare Trust, a promoter entity, without payment of any consideration to the aforesaid trust, the company said in a regulatory filing.
Kubota Corporation will become a joint promoter along with Escorts' existing promoter Nanda family, who currently hold 11.6 per cent stake but are not selling any of their shares under the deal.
Along with the Nanda family, the Escorts Benefit and Welfare Trust -- the current promoters of Escorts together hold a 36.59 per cent stake in the company at present.
Escorts said its board has also approved changing the name of the company from 'Escorts Ltd' to 'Escorts Kubota Ltd' or any other name containing the trade names 'Escorts' and 'Kubota' as may be approved by the Central Registration Centre, Registrar of Companies (RoC) and other regulatory authorities.
Escorts Kubota Ltd will be one of the largest Indo-Japan agriculture collaboration, establishing unparalleled commercial reach, the company added.
The two partners have also decided to merge Kubota's subsidiaries in India where Escorts is also a partner -- Kubota Agricultural Machinery India Pvt Ltd (KAI) and Escorts Kubota India Pvt Ltd -- into Escorts, subject to necessary approvals.
The preferential allotment and open offer are likely to be completed by March 2022, Escorts said in an investor presentation.
After the closure of the first leg of the deal and the cancellation of the shares held by the trust is completed, Kubota's shareholding in Escorts could reach up to 53 per cent.
Also, when the merger of the JVs happens, it will slightly further increase Kubota's stake and eventually they could end up with around 54-55 per cent stake, Escorts Group CFO Bharat Madan told PTI.
When asked how long the process would take place, he said,"There's a legal issue involved. Legal process and regulatory approvals will take some time. There will be another two to three years sort of journey for the entire thing to get consolidated into a single entity." The outer limit will be three to three-and-half years, Madan said.
Commenting on the development, Escorts Chairman and MD Nikhil Nanda said,"This will enable both companies to enhance the value they have created by leveraging each other's strengths -- be it in technology, market access, manufacturing processes or engineering excellence. With this Escorts is positioned to become an institution that will serve Indian and global farmers for decades and centuries." While Escorts is known for its stronger India presence with proven strengths in frugal engineering and manufacturing, Kubota brings world-class processes and global reach and expertise, he added.
"The construct of the new collaboration shall be based on excellence and innovation to cater to the needs of customers globally, addressing food security and environmental challenges by providing smart agriculture and infrastructure solutions. The transaction will catapult Escorts to a different level of expertise, size and growth," Nanda added.
Kubota Japan President and Representative Director Yuichi Kitao said the journey between Kubota Corporation and Escorts Ltd, which began in 2016, has reached a major milestone with the signing of "a historic agreement".
"Both Kubota Corporation and Escorts Ltd have a legacy of more than 130 and 75 years, respectively. The combined entity and the larger collaboration will provide advanced farm mechanisation solutions to address global food security and enhanced farm productivity. We are extremely proud and excited to unite for the future as one company," he added.
Kubota also intends to have Nanda engaged in his individual capacity as a non-employee with the proposed designation of Senior Managing Executive Officer and General Manager of Value-Innovative Farm and Industrial Machinery Strategy and Operations of Kubota, the statement said.
Besides, there is a proposal to induct him as a director on the board of Kubota's European business holding company, Kubota Holdings Europe BV Netherlands.
"Nanda's non-employee involvement in the foregoing capacity will not interfere with his role as the CMD of Escorts. There will be no remuneration payable to him for these services," it added.
Escorts further said its board has also approved entering into or continuing to enter into related party transactions for a period of five years with Kubota or relevant subsidiaries subject to an aggregate limit of Rs 4,500 crore per annum under mutually-agreed terms and conditions.
The transaction will also lead to an indirect change in control of Escorts Finance Ltd. Kubota will make an open offer to the public shareholders of Escorts Finance Ltd to acquire up to 26 per cent of the share capital, the company said.
JM Financial acted as the financial advisor, Transaction Square was the transaction advisor and DMD Advocates acted as the legal advisor to Escorts Ltd, the company said.


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