UPDATE 1-Spain's CIE to take majority stake in Mahindra's auto parts unit
* CIE to hold 51 pct stake in new entity Mahindra CIE
* Mahindra CIE Automotive will have annual sales of $3 bln
* Mahindra to buy 13.5 pct in CIE for $125.7 million (Adds deal and financial details, comments from management)
By Aradhana Aravindan and Sumeet Chatterjee
MUMBAI, June 15 (Reuters) - Spain's CIE Automotive SA will buy a majority stake in the combined auto component unit of India's diversified Mahindra Group for about $116 million to get access to new markets and supply networks.
Separately, the group flagship Mahindra & Mahindra Ltd , India's largest sports utility vehicle maker, has agreed to acquire a 13.5 percent stake in CIE for 94.24 million euros ($125.72 million).
As part of the complex deal announced on Saturday, Mahindra, a $16 billion group that has interests in businesses including automobile and information technology, will merge all its auto components businesses into its Mahindra Forgings unit.
Mahindra Forgings will be renamed Mahindra CIE Automotive, in which Spanish auto components maker CIE will hold 51 percent and Mahindra will own about 20 percent. The rest will be held by institutional and public shareholders.
Mahindra CIE will become one of the top 25 global auto component suppliers, with annual sales of $3 billion and operations from North America to Asia.
"(Through this deal) we do achieve consolidation of our own entities which has been on the cards for a while ... we also create a global entity simply by this alliance with them," Anand Mahindra, chairman of Mahindra, told reporters.
The transaction will be "cash neutral" for Mahindra, as the company will use the proceeds from the stake sale in its units to buy CIE shares, making it the second-largest shareholder in the Spanish company.
Mahindra will pay 6 euros per share for the CIE stake, a small premium to its Friday close of 5.57 euros.
"CIE's leadership and shareholders have a strategy to develop India as the gateway to the Asian market," Anton Pradera, chairman of CIE Automotive, said in a statement issued in Mumbai.
"We have been impressed by the promise of the Indian automotive market and the growing emergence of India as a key global production hub for small cars ... we are happy to see CIE gaining an entry to India."
CIE will acquire majority stakes in Mahindra's listed and unlisted auto component units from the founders and from public shareholders through mandatory share tender offers that have separately been announced.
As per the Indian takeover rules, any company buying a 25 percent stake in a listed Indian entity will have to launch an offer for at least 26 percent more from the public.
The final investment by CIE, whose clients include Ford Motor Co and PSA Peugeot Citroen, will depend on the response to the tender offer.
The listed Mahindra units in which CIE will buy stakes are Mahindra Forgings, Mahindra Composites and Mahindra Ugine Steel.
Mahindra, which has had a hard time building a presence outside India, has been scouting for overseas tie-up opportunities in recent years to realise a long-standing ambition to be a global player.
Anand Mahindra said that the deal would be an "enabler for the global expansion plans" of the group's automobile business.
India's Kotak Investment Banking acted as the adviser to the Mahindra Group on the transaction. ($1 = 0.7496 euros) ($1 = 57.5550 Indian rupees) (Editing by Susan Fenton)