Mahindra & Mahindra (M&M) has signed an agreement to acquire a 33 per cent stake in Mitsubishi Agricultural Machinery Co for $25 million (₹159.1 crore).

The deal will enable the companies to jointly develop products for the global tractor and agri-machinery market, apart from improving cost competitiveness though joint procurements.

“Further, we intend to bring some of MAM’s technologies to India as importing from Japan is not cost-effective,” said M&M Executive Director Pawan Goenka.

Mitsubishi Agricultural Machinery, which posted $408 million revenue in 2014-15, makes tractors, combine harvesters, rice transplanters and other machinery.

The company is Japan’s fourth-largest agriculture machinery maker and has been supplying tractors to Mahindra USA (M&M’s US subsidiary) and technical licences for walk-behind rice planters and a tractor in India.

Founded in 1914 as Sato Agriculture Machinery, the Japanese firm currently employees 1,700 people. It is a wholly-owned subsidiary of Tokyo-headquartered Mitsubishi Heavy Industries. The deal, expected to close by October 1, is through issuance of fresh common shares and Class A (non-voting) shares by Mitsubishi. It will use the funding to upgrade technology and products.

Japan ahoy! For M&M, this marks an entry into Japan’s automobile sector. It already has a presence in China and Korea. Tech Mahindra, another Mahindra group company, also has a presence in Japan.

The global opportunity in the agri-machinery market is estimated to be $126 billion, of which $49 billion is for tractors and the remaining $77 billion for other machinery.

“With this tie-up, we intend to tap China, the US and ASEAN markets, and source equipment both for M&M and MAM (Mitsubishi),” said Harish Chavan, Chief Operating Officer at M&M. M&M, which will get four board positions following the acquisition, does not have any plans to increase its stake beyond 33 per cent, he added.