Japanese tractor major Kubota eyes majority shareholding in Escorts

Picks up 5.9% more for Rs 1,873 crore

Japanese tractor major Kubota Corp is putting in Rs 1872.74 crore to pick up an additional 5.9 per cent stake in Escorts Ltd, according to a multi-layered deal announced on Thursday. Kubota, which will now hold 14.9 per cent in the Nanda family-owned Escorts, plans to infuse Rs 9400 crore to become a majority shareholder later.

The new entity, that will be run jointly by the Nanda family and Kubota Corp, is aimed at creating a potent force in the farm machinery and agricultural equipment space, the companies said.

At the end of the three-tier deal, Kubota Corporation’s stake will increase to 53.5 per cent. “The move inspires greater confidence in the company,” said an analyst at a domestic brokerage. The change in management, he added, would lead to an expansion in the firm’s valuation, he added.

Kubota would increase its stake in two phases. In the first phase, Escorts will give preferential allotment to Kubota at Rs 2,000 per share, infusing Rs 1,870 crore. In addition, Kubota will make an open offer at a preferential allotment price of Rs 7,500 crore.  

Nanda Family Holdings will continue to remain promoters after the transaction, though the name of the joint venture firm will be Escorts Kubota. The entire process of preferential allotment and open offer is expected to complete by March 2022, Escorts said. At the end of the preferential allotment and the merger, the company’s board will expand to 16 members. There will be no management change.

Once the transaction is completed, Escorts Kubota will draw a plan for the next six to seven years and this will include diversifying the product range in a big way and enhancing focus on farm machineries which presently form a small part of the business. Kubota will also use the cash reserve to set up a state of the art global R&D centre, Bharat Madan, chief financial officer, Escorts, said in an investor call.  

“One of the key ideas behind the deal is to have a single vehicle for all the operations. Right now we have a JV and another company,” said Madan. The current deal will take care of the conflict of interest and also pave way for a cleaner structure, he added. It will accelerate mechanisation in agriculture in India and globally.

Kubota will provide affordable and accessible tractors, utilizing Escorts’ know-how and frugal engineering capabilities, the companies said.  Kubota’s decades-old product development knowledge will help the latter improve its quality and productivity in the R&D, procurement and manufacturing functions, they said.

One of the biggest areas where Kubota will leverage Escorts capabilities is its distribution and service reach, allowing the partners to expand the product portfolio range, the company said.

“Escorts will be able to leverage the technology available in the Kubota’s ecosystem for the Indian market and outside,” Shenu Agarwal, CEO, Escorts said at the investor call.  The global R&D will develop products for India and globally. With Kubota and Escorts coming together, the domestic market share of the two entities will go up to 13 per cent. ‘’Our aspiration is to take it beyond 20 per cent,’’ he added.

JM Financial acted as the financial advisor and Transaction Square acted as the transaction advisor. After completing the transaction, Kubota Agricultural Machinery India and Escorts Kubota will be merged with Escorts.