There was a rumour few months back that Kubota will buyout Nanda family.
What has instead happened is that Kubota has decided to invest fresh and become a joint promoter with Nandas.
Key points to note –
- Kubota is investing Rs 1,873 crore into Escorts at a price of Rs 2,000/ share. As per regulations, it will do an open offer at same price to acquire additional 26% of the Company.
- Kubota already owns 9.09% in Escorts. This along with above would allow Kubota to hold upto 44.8% of Escorts (assuming full 26% open offer is subscribed). Nandas are not selling any of their stake and will hold about 11.8% stake of the diluted capital base. This is however subject to any further reduction in Escorts Benefits and Welfare Trusts (EBWT) shareholding of 16.3%. Both partners have agreed to analyse the viability of doing so. Assuming the whole EBWT portion gets cancelled, the stakes for Nanda family and Kubota will be 14.1% and 53.5% respectively. Detailed pre and post shareholding structure is provided below.
- Kubota will be reclassified under the promoter group and the name of Escorts will be changed to include Kubota.
- Entire group consolidation is planned that would include merging of Escorts Finance into Escorts and consolidation of other Escorts-Kubota JVs into Escorts. Details in the below charts.
- Nikhil Nanda will continue as the CMD of the Company and he will also be engaged in Kubota’s global operations.
- Board will comprise of 4 non-independent directors each from Kubota and Nandas. However, if Kubota becomes more than 40% shareholder, it will be allowed to appoint 5.
- Both Kubota and Nandas have a 5 year lock-in of shareholding and customary first right of refusal thereafter.
- In terms of rationale for the transaction – it’s as synergetic a transaction as one could hope for. Same industry and Global + Indian partners with their respective strengths.
There is nothing that seems off in the announced transaction. Yes, Nandas are losing defacto control because of their lower shareholding. However, Kubota being Japanese should come with patient and transparent style of working and hence I am not worried. Besides, in the announced transaction it doesn’t seem that Kubota is paying exorbitant.
One point that I am somewhat not sure is – how Indian regulators especially tax authorities would look at this transaction that entails a previous capital reduction and a planned further reduction. (EBWT)
Analysts advise against subscribing to Kubota’s Escorts open offer
Expect the stock to rerate due to this transaction.
Kubota not paying any premium for Escort shares: Proxy advisory firm
Reason – defacto increase in their stake (due to EBWT share cancellation) and hence lower effective acquisition price per share.
Technically what proxy advisory firm is saying makes sense. However, I would still vote in favour and not take the risk for Kubota to come back with an enhanced offer.
Escorts has confirmed to receive Rs 1,873 crore from Kubota in line with the terms of the deal.
Date of open offer for public are announced –
Opening date – March 14, 2022
Closing date – March 28, 2022
During this period all the public shareholders are entitled to tender their shares for the buyback. There is no record date to be bothered about.
Escorts has informed to have received requisite approvals for the name change of the company from “Escorts Limited” to “Escorts Kubota Limited” with effect from June 9, 2022.