August 12, 2010 / 12:28 AM / 7 years ago

UPDATE 3-Ssangyong picks India's Mahindra as preferred bidder

* Acquisition price to be set in Oct after due diligence

* No financial details; sources said Mahindra to pay $400 mln

* Ssangyong down 8 pct on potential bid price gap - analysts

* Mahindra says will invest in Ssangyong portfolio

* Mahindra says bid money to be used to settle Ssangyong debt

(Adds details on Mahindra, analyst quote, changes byline)

By Cheon Jong-woo and Janaki Krishnan

SEOUL/MUMBAI, Aug 12 (Reuters) - South Korea’s troubled Ssangyong Motor (003620.KS) named India’s Mahindra and Mahindra (MAHM.BO) as its preferred buyer in a deal that reinforces the growing clout of emerging market automakers.

SUV maker Ssangyong, which is in bankruptcy protection, said Mahindra, India’s top utility vehicle maker, had been chosen after making the highest bid and securing financing plans. No financial details were disclosed, however, and the uncertainty helped send Ssangyong shares down more than 8 percent.

Sources told Reuters last week that Mahindra was willing to pay up to $400 million to acquire a majority stake in Ssangyong as it seeks to become a major global utility vehicle maker. [ID:ID:nSGE67502H]

The deal will help Mahindra build a worldwide footprint as the Korean maker of the Rexton and Kyron SUVs and the Chairman luxury sedan also exports to Russia, Europe, China, and the Middle East.

But some analysts said it would take a while for Mahindra to see benefits from the deal with Ssangyong, which holds only 2 percent of the Korean market, is under court-led restructuring and has a debt pile of about $634 million. It also has a history of labour disputes.

“The acquisition could be slightly negative for Mahindra in the near term because Ssangyong is a small player and scalability is limited. So Mahindra will have to make some investments,” said Surjit Arora, auto analyst with brokerage Prabhudas Lilladher.

“I am guessing it would take two to three years for Mahindra to turn around the company.”

Mahindra said it would invest in Ssangyong’s product portfolio, but added that the Korean automaker would continue operating as an independent entity with Korean management.

Mahindra’s Chief Financial Officer Bharat Doshi told reporters Thursday afternoon its bid money would be used to settle Ssangyong’s long-term debt.


Automakers from emerging markets such as India, South Korea and China have become increasingly important on the global stage in recent years.

    Korean market leader Hyundai Motor (005380.KS) was a clear winner during the global crisis, stealing market share and growing profits as U.S. rivals struggled to survive.

    China’s Geely completed its purchase of Volvo cars from Ford Motor (F.N) this month, while Mahindra and Tata Motors (TAMO.BO) fought in 2008 to buy luxury brands Jaguar and Land Rover from Ford.

    India’s Ruia group, which also bid for Ssangyong and was named a reserve bidder, purchased tyremakers Dunlop (DUNL.BO) and Falcon Tyres (FLTR.BO).

    Shares in Ssangyong dropped 8 percent on Thursday amid uncertainties over the deal as it struggles with about 740 billion won ($626 million) in debt and needs fresh capital to increase investment.

    The stock plunged by the daily limit of 15 percent on Wednesday after Renault-Nissan (RENA.PA) (7201.T) pulled out of the bidding earlier this week, raising concerns that it may fail to find a buyer.

    Mahindra shares edged up 0.7 percent in a flat Mumbai market.

    The deal, if agreed, will mark a third change of main shareholder for Ssangyong. Now defunct Daewoo group took over the company in 1998 and Ssangyong was sold in 2004 to China’s top automaker SAIC Motor Corp (600104.SS), but both failed to grow the automaker to challenge Hyundai.

    It would also mark the second investment by an Indian automaker in Korea after Tata Motors bought Daewoo’s commercial vehicle arm in 2004.

    Ssangyong said the final acquisition price would be decided in October after due diligence. It plans to close the deal in November.

    After a dismal 2009 and nearly two months of strikes to block layoffs, Ssangyong has been recovering fast from one of the industry’s worst ever downturns. Its sales more than trebled in the first seven months of this year to 43,811 vehicles. ($1=1182.0 Won) (Additional reportng by Seo Jiwon in Seoul; Writing by Miyoung Kim and Jui Chakravorty; Editing by Jonathan Hopfner and Lincoln Feast)

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