Hindujas eye French giant

Controlling stake in auto-parts firm may cost $1.5bn.

The Hinduja Group, promoters of India's second-largest truck-maker Ashok Leyland, is in talks with Europe's third-largest auto component manufacturer Valeo SA to buy a controlling stake in the company in a deal that is expected to be around $1.5 billion (Rs 6,000 crore).

Hinduja executives met the top team at Valeo in Paris last week, a source familiar with the development confirmed.

"The deal will provide immense synergy for Ashok Leyland and Ennore Foundries," he added. Ennore Foundries is an associate company that provides raw material for engine components.

Valeo has a market capitalisation of $3.03 billion according to the company's last trading day data. At current valuation a controlling stake of 51 per cent would be over $1.5 billion.

A Hinduja group spokesperson declined to comment. The group also did not respond to an email query sent on Friday.

The Hinduja Group has projected an investment of $50 billion (Rs 2 lakh crore) over the next 5 to 7 years in diversified growth opportunities. Ashok Leyland had also talked about entering the auto component business at a recent analyst meet.

"The group has been scouting for big-ticket acquisitions in the auto business," said an analyst of a domestic brokerage who requested anonymity. Valeo has 125 production sites and a presence in 28 countries and provides components, systems and modules for both cars and trucks to original equipment makers (OEMs) and for the after market.

"This kind of acquisition will help it achieve a global footprint," the analyst added.

European auto-parts suppliers are facing a profit squeeze owing to rising raw material costs and pressures from carmakers to keep prices down.

Valeo reported operating revenues of $15.32 billion in 2007, a1.5 per cent growth over the previous year. The company's net income for the year was a mere $127.9 million, a 1.7 per cent drop from the previous year.

In its outlook for 2008 the company estimates growth in global car production to slow to 2.5 per cent from 5 per cent in 2007.

Hedge fund Paradus European Special Opportunities Master Fund LP is Valeo's largest shareholder with 18.54 per cent, according to data up to December 31, 2007, available on the company's website. Morgan Stanley & Co International holds 11.11 per cent as the second-largest shareholder.