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Motherson Sumi eyes Wilbur Ross company IAC for $800 million buyout

MUMBAI/NEW DELHI: In what would arguably be among its boldest bet so far,

Motherson Sumi

Systems Limited (MSSL) the flagship listed company of the $6.9 billion Samvardhana Motherson Group, is in advance negotiations with billionaire investor Wilbur Ross to buy one of his portfolio companies International Automotive Components (IAC) Group for $750-800 million as the restructuring guru seeks to cash out of the low margins business following aborted attempts of an IPO, said multiple sources aware.

The acquisition, if completed successfully, will also help Vivek Chand Sehgal, co-founder and chairman of the Motherson Group persify further into newer product categories in the auto interiors space and more importantly break into key markets like US where it has so far shopped only once – the wiring harness business of Stoneridge in 2014-15. Currently, 84% of MSSL’s revenues come from overseas with Germany being the biggest contributor. The company aims to get 30% of its revenue from Americas alone in the next 5 years.

Luxemburg headquartered IAC is a global auto-industry supplier that last year generated almost $6 billion in annual revenues selling instrument panels, cockpits, doors and trim, headliners and other exterior components from its 85 manufacturing facilities spread across 20 countries.

IAC had failed to launch a planned $115 million initial public offering in 2011 and delayed it again in 2013 during market turmoil in Europe. The supplier planned to re-launch the IPO last year, but never followed through. Last August, the company also saw the appointment of auto parts turnaround specialist Robert “Steve” Miller, as its new CEO, who came on board after reorganizing Delphi Corp. Most saw this development as part of a new strategy by Ross to find a partner to revive the operations or monetise his investments. Subsequently, Bank of America Merrill Lynch and Jeffries were mandated to initiate a formal sale process late last year.

MSSL is said to have pipped several global suitors and private equity buyout funds to emerge as the final contender, added the sources mentioned above on condition of anonymity as the talks are still in private domain. One of the sources even added, that both parties are now engaged in exclusive negotiations. However this could not be verified independently. MSSL is also believed to be parallely pursuing one more international target.

Sources add, Motherson is likely to use its Netherlands-based European arm — Samvardhana Motherson Automotive Systems Group B.V. (SMRP BV) — for this acquisition which was also used in previous acquisitions of Peguform and the rear view mirror business of Visiocorp plc UK.

On a consolidated basis, in FY15, MSSL has Rs 1891 crore of cash in its books and net debt of Rs 5130 crore. Its current market cap is Rs 29,523.23 crore.

MSSL spokesperson declined to comment on market speculation. Mails sent to spokesperspons of IAC and Wilbur Ross & Co did not generate a response till the time of going to press.

BUYOUT MACHINE IAC was formed in 2006 when. Ross’s private-equity firm W.L. Ross & Co. LLC and investment fund manager Franklin Mutual Advisers LLC merged the interiors business of Lear Corp. with Collins & Aikman Corp. The company grew from there as Ross bought other parts makers globally. Similar to Motherson’s strategy of inorganic growth via acquisitions, IAC too has been a consolidator in the interiors segment with a total of 17 buyouts since inception. It made its last acquisition in July 2013, when it took a stake in South African joint venture IAC-Feltex (Pty) Ltd., a maker of automotive flooring, acoustics and trim components. However, its shrinking margins have been a consistent worry. Analysts familiar with the ongoing discussions say, compared to its peers IACs margins are 50% less which gives opportunity to a player like MSSL to maximise value and achieve significant EBITDA upside.

Despite the short term volatility around the stock on lower revenue and margin growth in the December quarter – down 7.75% in the last 1 month as against a 3.35% decline of the benchmark Sensex — MSSL has witnessed phenomenal growth in the last 15 years with revenues and profits growing at a 44% and 35% CAGR respectively through a mix of greenfield projects and buyouts – about a dozen in as many years – and successfully turning them around. After clocking its $5 billion revenue target for 2015, Sehgal has already created the next 5 year blueprint for the entire group that talks of $18 billion in revenues with an ROCE of 40%. While $12 billion is expected from organic growth, the rest is expected from M&As.

“44% of Motherson’s revenues are linked to Volkswagen Group and the market has punished the stock this year after the auto major was caught in the emission software scandal. So persifying its multinational OEM base through big bets like IAC will help the company,” said a Mumbai based FII analyst who did not wish to get quoted.

To derisk the business, the company is already following its stated 3C X 15 strategy wherein no single customer, country or component should constitute more than 15% of total turnover. By 2020, the management is confident of reaching near 3CX10. Last year the company also bagged biggest order from Daimler worth approximately Rs 15400 crores, supply for which is expected to start in 2018. To support the Daimler’s expansion, MSSL has already invested in 2 new plants, one each in USA and Hungary, along with brownfield capacity expansion in in Germany. A lion’s share of the company’s fresh capex is going to be in Americas.

“We estimate MSSL’s consolidated earnings to witness 32% CAGR over FY15-18E, supported by 16% CAGR in revenues and 250 bps margin improvements,” wrote analysts from JM Financial in their Febriary 10th report. “We believe MSS offers robust revenue visibility with strong order-book of EUR 12.5bn+ and growing continuously. Further, capacity expansion would drive market share gains, especially in

BMW

and Daimler, persifying revenues,” added Jay Kale, analyst at Elara Capital in his February brokerage report.

Interiors in recent times seen mega deals as some corporations choose to get out of the space while others are filing gaps in their lineup and saving on significant development costs. Johnson Controls Inc. exited the automotive interiors business in 2014 after it spun off its $3 billion unit into a joint venture with Shanghai-based Yanfeng Automotive Trim Systems Co. JCI holds a 30 percent stake. The supplier also said it was seeking options to ditch its seating business, exiting automotive all together due to the capital-intensive nature of the industry.

Volkswagen Group to merge all three passenger car entities in India

German auto major Volkswagen Wednesday said it intends to merge all passenger car entities in India, which will now be led by group firm Skoda Auto as part of its new strategy for the country. The boards of the three Indian subsidiaries — Volkswagen India Private Ltd (VWIPL), Volkswagen Group Sales India Pvt Ltd and Skoda Auto India Pvt Ltd (SAIPL) — have approved the proposal for their merger, the Volkswagen (VW) Group said in a statement.

The proposed merger is now subject to necessary regulatory and statutory approvals.

It, however, said VW Group brands — Volkswagen, ŠKODA, Audi, Porsche and Lamborghini — will maintain their inpidual identities, dealer network and customer experience initiatives.

The brands will work under the leadership of Gurpratap Boparai, who is currently the managing director of VWIPL and SAIPL, with a common strategy for the Indian market.

“India is an important and an attractive growth market for the Volkswagen Group. With the proposed merger, we intend to combine the technical and managerial expertise of the three companies to unlock the Volkswagen Group’s true potential in India’s competitive automotive market,” Boparai said.

The integration will lead to coordinated and faster decision making and increased efficiency using existing synergies, he added.

Last year in July, the VW Group had announced investments of Rs 8,000 crore (EUR 1 billion) for its ‘India 2.0’ to be led by Skoda Auto to strengthen its presence in the country.

Under the initiative, the German automaker had stated it would introduce by 2020 its first product based on localised sub-compact MQB-A0-IN platform that has been tailored to the needs of customers in the Indian subcontinent.

The group had also set a target of capturing 5 per cent of the Indian passenger vehicles market by 2025, up from around 2 per cent currently.

In January this year, the group opened its technology center in Pune, laying the foundation for the development of products based on the MQB-A0-IN platform.

In the second phase of the project, VW Group will be examining the possibility of exporting vehicles built in India, the statement said.

Skoda to launch mid-sized SUV Kushaq Q2 of 2021

New Delhi: Czech auto maker Skoda on Thursday said it will launch its mid-sized SUV, Skoda Kushaq — the first vehicle designed and developed under VW Group‘s ‘India 2.0’ project — in the second quarter of 2021. The Skoda Kushaq will also steer the way for a series of vehicles, proposed to be introduced over the next 18 months, Skoda Auto India said in a statement.

The new offering will also be the first vehicle based on the localised ‘MQB A0 IN’ platform and “will resonate virtues of the premium SUVs of the company, Kodiaq, Karoq, and Kamiq”, it added.

The vehicle is slated to be launched by the second quarter of 2021.

Commenting on the upcoming model, Skoda Auto India Brand Director Zac Hollis said, “The new Skoda Kushaq will offer a compelling combination of the brand’s timeless design ideals, unmatched performance, superior build quality, exemplary value proposition, and enhanced safety and security.”

With the Skoda Kushaq, the Czech automobile manufacturer said it leaps forward into a “new era of mobility for the Skoda Auto led Volkswagen Group, in India, based on state of the art and locally developed Modulare Querbaukasten (MQB) A0 IN platform”.

“The latest offering, Skoda Kushaq, will also steer the way for a series of vehicles, proposed to be introduced over the next 18 months, tailored to the needs and demands of discerning customers from the domestic market as well as other emerging economies from the world over,” it added.

Under the India 2.0 Project, German automotive group Volkswagen had announced in 2018 that it would invest 1 billion euro (around Rs 7,900 crore) between 2019 and 2021 as part of its strategy to enhance presence in India which will be led by group firm Skoda Auto.

Under the plan, Skoda Auto was envisaged to set up an engineering design and development centre at Pune besides enhancing capacities at the group’s two plants at Aurangabad and Pune.

More automakers extend support as Covid-19 cases rise in India

Mumbai: From contributions to government relief funds to providing medical supplies and essentials to the needy, automakers have loosened their purse strings and announced several support measures towards fighting the Covid-19 pandemic.

German luxury-car maker Mercedes announced that it will set up a 1,500-bed temporary hospital near Pune for the treatment of Covid-19 patients. The company also supported the Grant Medical Foundation (Ruby Hall Clinic) directly by donating ventilators.

Skoda Auto Volkswagen India, the Indian arm of the Volkswagen Group, on Wednesday pledged Rs 1 crore towards the setup of a dedicated Covid-19 facility at the Sassoon General Hospital in Pune. The company also announced that it will distribute sanitisers and food packets and will import medical supplies to India through its parent Volkswagen AG.

Earlier, Tata Group had pledged Rs 1,500 crore to the effort, one of the biggest sums donated so far.

Mahindra Group announced that it will help manufacture ventilators and other medical equipment. Mahindra and Mahindra managing director Pawan Goenka also shared a video of a prototype ventilator developed by the company.

Bajaj Group pledged Rs 100 crore towards several relief measures. The funds are to be used to upgrade healthcare infrastructure in Pune hospitals, provide rural livelihood, and food and essential services to the needy.

The country’s largest carmaker Maruti Suzuki said that it will assist in the production of ventilators, masks and other protective equipment. Hyundai said that it will be importing testing kits from South Korea that would serve 25,000 inpiduals.

TVS Group pledged a sum of Rs 30 crore for providing 1 million masks, meals, and disinfectant vehicles.

Skoda, VW line up 1 million euro aid to fight COVID-19 in India

Czech carmaker Skoda on Wednesday said it along with the Volkswagen Group (VW) has lined up one million euros (around Rs 9 crore) aid to support the fight against COVID-19 in India. Due to the serious humanitarian situation in India caused by the COVID-19 pandemic, Skoda Auto is planning an aid package in cooperation with the Volkswagen Group consisting of in-kind and financial donations totaling one million euros, the automaker said in a statement.

“We are in contact with our colleagues in India every day. They know best what is most urgently needed at the moment. We are working hard to secure the appropriate relief supplies, including oxygen tanks, and transport them to India as quickly as possible,” Skoda Auto Chief Executive Officer Thomas Schafer said.

Skoda Auto leads the Volkswagen Group’s activities in the Indian market.

The second wave of coronavirus has India firmly in its grip.

The sudden spike in infections is affecting a shortage of hospital beds, medical oxygen, and antiviral medication straining the overall healthcare system.

As a local employer in Pune, Aurangabad, and Mumbai, Skoda has a responsibility in the country and the car manufacturer is therefore donating around one million euros at short notice to help improve the situation, the automaker noted.

The support will consist of medical supplies and a monetary donation to the German Red Cross, it said.

This is intended to meet as many different aid needs as possible in the badly affected regions, it added.

Among other things, the carmaker said it is procuring medical equipment and materials such as oxygen generators and liquid oxygen tanks, which are necessary for inland transport.

The brand’s purchasing and logistics departments are working tirelessly to acquire the relief supplies at short notice and deliver them to the crisis region as quickly as possible, despite the difficult conditions caused by the pandemic, it added.

The Indian Red Cross is expected to handle the distribution locally, it said.

“The country is going through an unprecedented situation with the unexpected rise in COVID-19 cases, leading to extreme stress on the healthcare facilities in India. Skoda Auto’s generous donation, both material and financial support will provide some relief to those affected,” Skoda Auto Volkswagen India Managing Director Gurpratap Boparai said.

Hyundai Motor heir takes over from father after 20 years in waiting

SEOUL – Hyundai Motor Group appointed Euisun Chung as group chairman on Wednesday, cementing his succession from his octogenarian father in a move likely to give impetus to the world’s fifth-largest automaker’s push into electric vehicles and flying cars.

In the first generational handover at the South Korean automobile giant in 20 years, Chung, 49, said he hoped to lead change at South Korea’s second-biggest conglomerate as it battles to stay ahead of the pack in a time of rapid technological innovation in the global auto industry.

“Carrying on their bold and innovative legacies, I feel privileged, yet also a sense of great responsibility for opening a new chapter of Hyundai Motor Group,” Chung said in his inauguration speech to employees.

Chung identified autonomous driving, electrification, hydrogen fuel cell, robotics and Urban Air Mobility (UAM) – industry jargon for flying cars – as his initiatives for the future.

Hyundai Motor shares were trading up 0.3% after rising as much as 2.5% after the appointment, while the wider market was down 0.6%. Kia Motors and Hyundai Mobis fell 1.6% and 1.1%, respectively.

LEGACIES
Hyundai Motor Group earlier on Wednesday said Chung had been promoted to chairman from executive vice chairman, replacing his father, Mong-Koo Chung, who was made honorary chairman.

Key affiliates of Hyundai Motor Group, including Hyundai Motor, endorsed his inauguration unanimously.

The appointment makes Chung the latest third-generation leader to take over one of South Korea’s family-led conglomerates, which have been credited with lifting the war-stricken country out of poverty since the 1950s.

His father took the wheels of the group in 2000 and transformed the company, once mocked for poor vehicle quality, into the world’s No.5 automaker.

The 82-year-old has been stepping back from frontline operations in recent years, and gave up his board seat in Hyundai Motor earlier this year.

Euisun Chung has played an increasingly visible leadership role since September 2018 when he was promoted to executive vice chairman.

Hyundai Motor Group invested $1.6 billion in a self-driving technology joint venture with U.S. Aptiv, forged a partnership with Uber on electric air taxis and invested in ride-hailing firm Grab.

In July Chung set a goal to win more than 10% of the global market for battery EVs by 2025.

Legacy automakers with similar ambitions face a growing threat from Tesla Inc, which has become the most valuable automaker. Hyundai recently said it plans to recall its top-selling EVs because of battery fire risks.

Euisun Chung does not have a major stake in Hyundai Mobis , an affiliate seen as key to control of the group, and is expected to renew the push for ownership restructuring to cement his influence after a previous attempt in 2018 met shareholder opposition.

Chung is credited with steering the turnaround of Kia Motors by hiring former Audi designer Peter Schreyer. As vice chairman of Hyundai Motor, he also launched the luxury brand Genesis in 2015.

Volkswagen to seek dieselgate damages from former CEO Winterkorn and Audi boss Stadler

Volkswagen will claim damages from former Chief Executive Martin Winterkorn and former Audi boss Rupert Stadler over its diesel emissions scandal, the carmaker said on Friday, trying to draw a line under its biggest-ever crisis.

The German company said that following a far-reaching legal investigation it had concluded Winterkorn and Stadler had breached their duty of care, adding it had found no violations by other members of the management board.

Winterkorn and Stadler have both denied being responsible for the scandal.

Volkswagen in 2015 admitted using illegal software to rig diesel engine tests in the United States, sparking Germany’s biggest corporate crisis.

The scandal has cost the carmaker more than 32 billion euros ($38 billion) in fines, refits and legal costs.

Winterkorn resigned as CEO on Sept. 23, 2015, a week after the scandal broke.

About three years later, Volkswagen terminated Stadler’s contract as Audi CEO against the backdrop of a criminal investigation into whether he was involved in emissions cheating by the German group.

Volkswagen said the investigation it launched into the scandal, handled by law firm Gleiss Lutz, included the screening and review of 1.6 million files and more than 1,550 interviews and questionings.

“Both Prof. Winterkorn and Mr. Stadler accomplished great things with the Volkswagen Group … there is no question that the impressive achievements in their professional careers still stand,” Volkswagen’s supervisory board said in a note sent to staff on Friday.

“However, as successful as their work was, there were aspects that Prof. Winterkorn and Mr. Stadler as Group Board members did not monitor carefully enough,” it said in the note, seen by Reuters.

As a result, the company had decided to assert claims for damages against Winterkorn and Stadler on account of breaches of duty of care under stock corporation law, it said.

Winterkorn’s lawyers said in a statement the former CEO regretted the supervisory board’s decision and rejected the accusations against him.

“Mr Prof Dr Winterkorn is aware that the supervisory board is obliged to assess potential claims and to possibly assert them. He will therefore seek to clarify those questions in consultation with Volkswagen AG,” the statement said.

Stadler’s lawyers declined to comment.

Volkswagen concluded that Winterkorn had breached his duty of care by failing to fully and swiftly clarify circumstances behind the use of unlawful software functions in some diesel engines sold in the North American market between 2009 and 2015.

In Germany, damage claims against former executives are rare but not uncommon. In 2009, former Siemens CEO and Chairman Heinrich von Pierer agreed to pay 5 million euros in a bribery scandal.

VW’s Skoda to invest 2.5 bln euros in new technologies over next five years

Czech carmaker Skoda Auto, part of the Volkswagen Group, said on Wednesday it would invest around 2.5 billion euros over the next five years on future technologies, with more than half going to electric vehicle investment.

The Czech Republic’s largest exporter reported on Wednesday a 756 million euro operating profit in 2020, a year-on-year drop of 54.5% as the coronavirus pandemic cut into deliveries.

Sales revenue dropped 13.8% to 17.1 billion euros. Global deliveries remained above 1 million cars for a seventh straight year despite a 19% drop after production outages at the outset of the pandemic and a fall in China, its biggest single market.

Skoda said it expected a rebound in performance in 2021.

In reporting 2020 results, the Czech carmaker, seen as a bellwether for the export-oriented economy, said it planned investments of 1.4 billion euros into electromobility development as part of its five-year investment plan.

Investments will also go into digitalisation activities and plant modernisation.