Financial Daily from THE HINDU group of publications
Saturday, Nov 29, 2003
Mergers & Acquisitions
Corporate - Mergers & Acquisitions
Tata Motors not keen on Ssangyong stake
Mumbai , Nov. 28
TATA Motors, approached earlier by investment bankers with a proposal, has decided not to bid for controlling stake at South Korea's fourth largest automaker, a company spokesperson said on Friday.
Wire agencies had reported of news in the Maeil Business Newspaper that the Tata Group had submitted a letter of intent to buy 55.4 per cent stake in Ssangyong Motor Co. According to the paper, eight companies indicated interest in buying the stake.
"We are not interested," Tata Motors' spokesperson said when contacted. A senior Tata Sons official separately confirmed that no other group company was in the fray.
Tata Motors is currently doing due diligence to acquire Daewoo Commercial Vehicle Company Ltd, the second-biggest manufacturer of heavy commercial vehicles in South Korea with a 26 per cent market share. The acquisition may cost around $118 million.
Ssangyong, best known for its sports utility vehicles (SUVs), used to make commercial vehicles. Further, akin to DaimlerChrysler's long-held equity stake in Tata Motors (currently 8 per cent), the German giant in 1991 forged a technical alliance with Ssangyong, picking up equity in the process. Ssangyong's engines are based on Mercedes technology, its `Musso' SUV ran on one, while the sedan `Chairman' additionally sported a Mercedes chassis and wore the looks. Still, Ssangyong built fine presence in SUVs, the Musso Sports variant even pioneering a sports utility truck niche in Korea.
In the mid-90s, when Korean automakers were US-bound, the disparity in approach at Ssangyong was noted, its SUV focus casting it bang into the stronghold of GM, Ford and Chrysler. Hyundai and its affiliate, Kia, together control near 70 per cent of the South Korean automobile market. But Ssangyong is said to have 40 per cent share in the market for SUVs, a growing segment given the shift at South Korean companies to the two-day weekend format
"Ssangyong is an attractive asset, if the price is right," an official from the domestic auto component sector said. However, this can be challenged, when viewed from a long-term investment perspective. Centrestage being DaimlerChrysler's support and how long its technology agreements with Ssangyong will stay particularly given the former's now diluted equity stake in Ssangyong. In turn, this puts a question mark on the sustainability of Ssangyong's strength.
On two previous occasions, Ssangyong products were reported as India-bound, both through a likely tie-up with domestic utility vehicles major Mahindra & Mahindra Ltd (M&M). Prior to the Scorpio's launch, the Musso was in the media as potential candidate for sale here through M&M. While that never happened, the Ssangyong `Rexton' has since been cited as successor.
When contacted, Mr Alan Durante, Executive Director, M&M, said the company remains interested in the Rexton SUV, but its interaction with Ssangyong is limited to a specific product, such as Rexton.
Monday before last, creditors of Ssangyong Motor Chohung Bank and 27 others said they would be selling their stake, paving the way for the first major acquisition in the Korean automobile industry after General Motors' $400-million deal to acquire select Daewoo assets in 2002.
Ssangyong Motor was itself in Daewoo's orbit when the latter acquired controlling stake in 1997. Daewoo Group has since become defunct, the assets of Daewoo Motor India Ltd currently under auction to recover creditors' dues.
Splitting from Daewoo, Ssangyong came under a debt workout programme, main creditor Chohung Bank later naming Samil Accounting to lead an auction to sell the 55.4 per cent held by Korean creditors.
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