Will buy out UK firm’s 26% stake
Mahindra Defence Systems, a Mahindra and Mahindra unit, is to acquire BAE Systems’ 26 per cent stake in their joint venture company Defence Land Systems India (DLSI).
Citing changes in the business environment and customer procurement frameworks among other reasons for the decision to end the venture, Brigadier Khutub Hai, Chairman and Managing Director, Mahindra Defence Systems, said: “This is a strategic decision and will enable both the companies to approach opportunities individually and offer customised solutions.”
On January 23, both the companies, which were to invest Rs 99 crore over a three-year period in the joint venture, decided to conduct a strategic review. Business Line had reported that the review should not be construed to have a negative connotation.
“Since the establishment in 2009 of the M&M (74 per cent) and BAE Systems (26 per cent) joint venture, DLSI, there has been significant evolution in the Indian land systems market. Developments in both the industry environment and in customer procurement frameworks and acquisition strategies have led the shareholders to conduct a strategic review of the DLSI business,” said the automobile-to-technology major. “The decision is a reflection of the shareholders’ belief that they can best meet emerging customer requirements and address the opportunities in this dynamic market with a flexible, tailored approach that was not easily facilitated by the structure of the existing joint venture entity,” the company said in a statement.
Dean McCumiskey, Managing Director and Chief Executive, India, BAE Systems, said: “India is a key international market for BAE Systems. Building domestic capabilities in partnership with Indian companies will remain a cornerstone of our strategy in India.”
He added that India’s ambitious plans for modernisation and expansion of the armed forces and focus on developing self-reliance in defence presented considerable opportunities for the UK company.
At the time of signing the joint venture agreement, the two companies had said the parent firms would initially invest $21.25 million over three years.
Incidentally, this is not the first time M&M is buying out a joint venture partner. Last September, M&M and its US partner Navistar decided to part ways. M&M said it would acquire Navistar International Corp’s 49 per cent stake in Mahindra Navistar Automotives and Mahindra Navistar Engines for Rs 175 crore.
In 2010, M&M ended a joint venture with French car-maker Renault. The five-year-old venture ended acrimoniously with Renault agreeing to give up its 49 per cent stake.
Similarly, M&M opted out of its maiden car joint venture with Ford Motor by selling its 15.88 per cent equity holding in Ford India. Ford also ended its ties with M&M by offloading its 5.16 per cent stake in the Mumbai-based utility vehicle manufacturer. Early last year, M&M sold its 70 per cent stake in Italian firm Engines Engineering back to promoter Alberto Strazzari. Reasons behind the end to the three-and-a-half-year partnership have remained unclear.