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Mergers and Acquisitions

Indian Institute of Management, Lucknow

Group 2, Section B

Abhineet Gaurav PGP27198

Apurv Raj PGP27206

Bharani Kumar PGP27247

Dhaval Chudasama PGP27018

Neeraj Gupta PGP27032

Tapan Bhatia PGP27256

Submitted to

Prof. Neeraj Dwivedi

Mahindra Ssangyong Deal

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Table of Contents

PRE-MERGER ANALYSIS ................................................................................................................................... 1

FIRMS INVOLVED, CONTEXT OF THE MERGER AND THE STATE OF THE INDUSTRY ........................................... 1

SSANGYONG MOTORS .............................................................................................................................................. 1

MAHINDRA GROUP ................................................................................................................................................. 1

CONTEXT OF THE MERGER AND THE INDUSTRY .............................................................................................................. 2

CORPORATE STRATEGY OF THE FIRMS INVOLVED ............................................................................................ 2

MAHINDRA & MAHINDRA ........................................................................................................................................ 2

SSANGYONG MOTORS .............................................................................................................................................. 2

NATURE OF THE MERGER ................................................................................................................................ 3

HORIZONTAL MERGER RESULTING IN A COMPLEMENTARY PORTFOLIO ............................................................................... 3

SPECIFIC INTENT/REASONS OF THE MERGER ................................................................................................... 4

POST-MERGER ANALYSIS ................................................................................................................................. 7

DEAL VALUE AND STRUCTURE ......................................................................................................................... 7

DEAL STRUCTURE .................................................................................................................................................... 7

VALUATION ............................................................................................................................................................ 7

POTENTIAL SOURCE OF VALUE FOR MAHINDRA ............................................................................................................. 8

STANDALONE PERFORMANCE OF SSANGYONG MOTORS POST DEAL .............................................................. 9

GAINS TO THE TARGET AND THE ACQUIRER .................................................................................................. 10

BENEFITS TO SHAREHOLDERS OF SSANGYONG POST ACQUISITION .................................................................................... 11

BENEFITS TO SHAREHOLDERS OF MAHINDRA AND MAHINDRA POST ACQUISITION .............................................................. 11

HOW DID THE DEAL PROCEED? ...................................................................................................................... 12

PERFORMANCE OF MAHINDRA – POST DEAL ................................................................................................. 13

PRE AND POST MERGER ISSUES IN THE DEAL ................................................................................................. 14

SSANGYONG’S TROUBLED PAST ................................................................................................................................ 14

FAIR TRADE COMMISSION’S NOD ............................................................................................................................. 14

AMENDED REHABILITATION PLAN ............................................................................................................................. 14

RECENT HAPPENINGS .................................................................................................................................... 14

INDIA SPECIFIC HAPPENINGS .................................................................................................................................... 14

GLOBAL HAPPENINGS ............................................................................................................................................. 15

LEARNINGS FROM THE PROJECT .................................................................................................................... 15

REFERENCES ................................................................................................................................................... 16

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Pre-Merger Analysis

“A 70% share of SsangYong was acquired by India's Mahindra & Mahindra Limited in February

2011, after being named the preferred bidder in 2010 to acquire the bankruptcy-protected

company which cost Mahindra 522.5 million Won. Mahindra's acquisition was approved by South

Korea's Free Trade Commission.”

Firms Involved, Context of the Merger and the State of the Industry

Ssangyong Motors As a premier manufacturer of sports utility vehicles (SUV) and recreational vehicles (RV), SsangYong

manufactured premium products in Korea. Founded in 1954, it had been manufacturing automobiles

for more than five decades.

In 1988, it developed a compact 4WD SUV, Korando Family, which was the first SUV manufactured in

Korea. Since then it has established its reputation for innovation, leadership, and quality in the SUV

field in Korea. Its next SUV the Musso was a great success in Korea and key export markets like

Western Europe. In 1997, it launched a luxury passenger car, the Chairman. Since then it has

launched a number of SUVs and a new luxurious version of the Chairman named Chairman W in

2008. Its latest SUV, a monocoque compact SUV, named Korando C was launched in export markets

in October 2010.

Ssangyong had a strong domestic network of over 130 dealers and exports to over 90 countries

through over 1,200 dealers. Ssangyong Motor Co. was the fifth largest automaker in South Korea, in

a market that is largely dominated by names like Hyundai and Kia. The company’s largest production

is in the light SUV segment, but it also had the Chairman, which is a luxury sedan. Ssangyong, Korea's

smallest carmaker, is mainly a manufacturer of low-priced but robust SUVs such as "Rexton",

"Kyron" and "Actyon" that are sold globally.

Mahindra Group Mahindra embarked on its journey in 1945 by assembling the Willys Jeep in India and is now a US

$7.1 billion Indian multinational. It employs over 1,00,000 people across the globe and enjoys a

leadership position in utility vehicles, tractors and information technology, with a significant and

growing presence in financial services, aerospace, after-market, real estate, hospitality, logistics. The

Mahindra Group today is an embodiment of global excellence and enjoys a strong corporate brand

image.

Mahindra is the only Indian company among the top tractor brands in the world. It is today a full-

range player with a presence in almost every segment of the automobile industry, from two-

wheelers to UVs, SUVs and CVs. Mahindra has acquired a majority stake in REVA Electric Car Co Ltd.

(now called Mahindra REVA), strengthening its position in the Electric Vehicles domain.

Its flagship company Mahindra & Mahindra Limited earned the distinction of being the only Indian

automobile manufacturer to feature in the top 10 list of the Carbon Disclosure Leadership Index in

India, 2010, created by the Carbon Disclosure Project (CDP). CDP is an independent not-for-profit

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organization holding the largest database of primary corporate climate change information in the

world.

Context of the Merger and the Industry Mahindra, which was seeking to go global, had been eyeing Ssangyong to gain access to new

technologies for sport utility vehicles (SUVs) and expand its overseas presence. Having Ssangyong it

gives Mahindra access to markets like Russia, Europe, Middle East and China where Ssangyong

vehicles are already being exported. In one move Mahindra managed access to brands and

distribution networks globally.

The coming together of Mahindra and Ssangyong would result in a competitive global UV player.

Together with its financial capability, Mahindra offers competence in sourcing and marketing

strategy while Ssangyong had strong capabilities in technology.

The securing of a solid partner who has both financial capability and is engaged in diverse markets

would allow Ssangyong to emerge as a global SUV player through the strengthening of R&D,

investments in product development, better business competitiveness and global sales expansion.

There were strong complementarities between the Ssangyong and Mahindra portfolio of products,

providing an opportunity to create distinct positioning. The wide sales and distribution networks and

complementary product lines would provide access to many overseas markets for both companies.

There was also an opportunity to introduce a premium portfolio of SUVs in the Indian market,

providing a new growth avenue for Ssangyong and further strengthen our dominant position in the

UV segment.

Corporate strategy of the Firms Involved

Mahindra & Mahindra Mahindra & Mahindra Limitedis one of the largest automobile manufacturers by production in India

and a subsidiary of Mahindra Group conglomerate. The company was founded in 1945 in Ludhiana.

Over the past few years, M&M has expanded into new industries and geographies. They entered

into the two-wheeler segment by taking over Kinetic Motors in India. M&M also has obtained

controlling stake in REVA Electric Car Company.

Mahindra vice-chairman and managing director Anand Mahindra said earlier this month that “the

tie-up – the largest investment by an Indian company in South Korea – would create a platform for

global expansion and create an Asia-focused SUV player."

Around the time of the deal Mahindra, which was seeking to go global, had been eyeing Ssangyong

to gain access to new technologies for sport utility vehicles (SUVs) and expand its overseas presence.

Having Ssangyong it gives Mahindra access to markets like Russia, Europe, Middle East and China

where Ssangyong vehicles are already being exported. In one move Mahindra managed access to

brands and distribution networks globally.

Ssangyong Motors Ssangyong Motors (SYMC) is a South Korean company making SUVs and cars. Founded in 1954, it

began its business as a manufacturer of commercial vehicles. In 1986, the SsangYong Group acquired

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Keohwa Motors, a specialized UV manufacturer, with the brand Korando. In 1988, it developed a

compact 4WD SUV in the Korando family, which was the first SUV manufactured in Korea.

SsangYong originally started out as two separate companies; Ha Dong-hwan Motor Workshop

(established in 1954) and Dongbang Motor Co (established in 1962). In mid-1963, the two companies

merged into Ha Dong-hwan Motor Co.In 1964, Hadonghwan Motor Company started building jeeps

for the US Army as well as trucks and buses. Beginning in 1976, Hadonghwan produced a variety of

special purpose vehicles. After changing its name to Dong-A Motor in 1977, it was taken over by

Ssangyong Business Group in 1986 and changed its name to SsangYong Motor.

In 1991 it started a technology partnership with Daimler-Benz. The deal was for SsangYong to

develop an SUV with Mercedes-Benz technology. This was supposedly to allow SsangYong to gain

footholds in new markets without having to build their own infrastructure (utilizing existing

Mercedes-Benz networks) while giving Mercedes a competitor in the then-booming SUV market.In

1997, Daewoo Motors bought a controlling stake from the Ssangyong Group, only to sell it off again

in 2000, because the conglomerate ran into deep financial troubles.

Change in ownership (twice till 2004), coupled with financial instability resulted in

underinvestment/lack of investment in SYMC's product development and business. This in turn

resulted in volumes declining at a compounded rate of ~29% since CY05. With M&M acquiring

SYMC, SYMC may also have been expecting a reduction in debt and interest burden. Focus will

return to business and product development. With stable management and improvement in

financials, we expect normalcy in operations to return.

Nature of the Merger

Horizontal Merger resulting in a Complementary Portfolio A horizontal merger occurs between companies in the same industry. Horizontal merger is a

business consolidation that occurs between firms who operate in the same space, often as

competitors offering the same good or service. Horizontal mergers are common in industries with

fewer firms, as competition tends to be higher and the synergies and potential gains in market share

are much greater for merging firms in such an industry.

Ssangyong Motors (SYMC) had six models under five brands, including a luxury sedan, four SUVs and

one MPV. SYMC’s portfolio complements M&M's, which had entry and mid-level products (up to

Rs1m price range). The acquisition of SYMC adds a premium SUV (above Rs1m) and a luxury car to

M&M's portfolio. It gives M&M access to a good SUV product portfolio and marketing network of

over 1,400 dealers (of which 138 are in South Korea) in South Korea, Europe, Russia and other Asian

countries. The combined entity will, thus, have a larger market and expanded product basket.

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As far as the nature of the merger goes, it can thus be classified as a Horizontal Merger.

Specific Intent/Reasons of the Merger

1. Synergies in operations, coupled with technical strength

M&M will leverage its India advantage of low-cost component sourcing, as well as economies of

scale for global sourcing. Sharing of product platforms and powertrains will help reduce cost of

product development and time to market. SYMC's ~600 R&D staff and modern R&D infrastructure

will significantly enhance M&M's R&D efforts. Joint R&D program will enable optimization of

investments in product development. This coupled with product lifecycle experience accumulated by

SYMC over 40 years will supplement M&M's product lifecycle management. SYMC already used

engines developed in-house and will enhance M&M's capabilities in engine development. It will also

give M&M access to petrol powertrain, along with its diesel powertrains.

2. Will give access to high potential export markets

SYMC had a presence in Europe, Russia, South America, the Middle East, Africa and Asia. It had a

marketing network of over 1,400 dealers (of which 138 are in South Korea) in South Korea, Europe,

Russia and other Asian countries. Export markets offer significant potential for SYMC's products. In

the six months prior to the deal, it had already signed two long-term contracts totaling to annual

volumes of ~26,000 units. These contracts increase the visibility of SYMC's export volumes and will

probably aid its turnaround.

In CY08, Western Europe accounted for 45% of SYMC's exports, Russia & CIS countries for ~25%, Asia

for ~14%, South America for ~7% and MENA for 9-10%. It does not have any exports to the US

market.

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The share of exports in SYMC’s sales had consistently increased to over 50%

3. Focused management, financial stability will help normalize SYMC's operations

Change in ownership (twice till 2004), coupled with financial instability resulted in

underinvestment/lack of investment in SYMC's product development and business. This in turn

resulted in volumes declining at a compounded rate of ~29% since CY05. With M&M acquiring

SYMC, we can expect reduction in debt and interest burden. Focus will return to business and

product development. With stable management and improvement in financials, we expect normalcy

in operations to return.

SYMC has undergone change in ownership twice since 1997. In 1997, Daewoo Motors bought a

controlling stake from the Ssangyong Group, only to sell it off again in 2000, because the

conglomerate ran into deep financial troubles. In late 2004, the Chinese automobile manufacturer,

SAIC took 51% stake in SYMC. SAIC was blamed for stealing technology and failure to make

continued investments.

4. Cost rationalization, pick-up in volumes to aid cash breakeven for SYMC

SYMC has witnessed significant financial duress, especially since CY08. It got accentuated during

CY09 due to 77 days strike at its plant. As part of the settlement with workers, it reduced its

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manpower by 37% (~2,500 people) to 4,400 people, coupled with wage reduction. In CY08, it

incurred EBITDA loss of 3%, with volume of ~82,400 units. Following the pick-up in volumes,

reduction in staff cost and other cost cutting initiatives, SYMC turned EBITDA positive in 1QCY10,

with volumes of ~16,000 units and EBITDA margin of 2.5%. Subsequently, its volumes have picked up

further, with a monthly run-rate of 7,000 units since April 2010. Post the expected launch of 'C-200',

volumes are likely to pick up further. With fund infusion by M&M to retire long-term debt, we can

estimate significant reduction in its interest burden, thereby enabling cash breakeven. Further, cost-

cutting initiatives coupled with operational synergies with M&M would enable turnaround of SYMC

at PAT level.

5. Low capex requirements to support existing operations

The management indicated that SMYC had manufacturing capacity of ~120,000 vehicles and

~150,000 engines (on one-shift basis). Based on previous manpower of ~4,400 people, its manned

capacity of 100,000 vehicles was more than adequate to meet its current run rate of ~7,000 vehicles

per month.

It planned to launch a new product named 'C-200' in CY10. The majority of the investment in tooling

and product development had already been incurred. However, SYMC will have to invest in its

product development program, as after launch of 'C-200' it does not have any product available for

launch for another 1.5-2 years.

6. Deal appears favorable for M&M

The deal looks favorable for M&M; it will get access to new products, distribution network,

technology and potential to generate value due to operational synergies. However, the extent of

value creation will depend on the price paid. M&M's prospects will definitely be better, given its

market dominance in core business of UVs and Tractors, coupled with cheap valuations. It was

expected to be one of the biggest beneficiaries of normal monsoon, given its high dependence on

rural market demand.

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Ssangyong Motors 70% for 463

EV 661.428571

US $ Million

CY04 CY05 CY06 CY07 CY08 CY09

Sales 2,884 3,355 3,093 3,357 2,311 841

COGS 2,331 2,739 2,501 2,725 2,026 791

Gross Margins 553 617 592 632 286 50

SG&A 400 464 382 411 358 225

EBITDA 153 152 210 221 -73 -175

Depriciation 126 154 182 174 138 56

InterestExpense 33 31 40 34 39 84

Other Expense 53 -40 -52 10 -415 43

PBT 49 -58 -60 12 -657 -273

PAT 10 -101 -205 12 -657 -273

Enterprise Value

EV/Sales 0.786479

EV/EBITDA -3.77959

Post-Merger Analysis

Deal Value and Structure

Deal Structure

The deal was valued at US$ 463 mn (INR 2,105 crores)1. This deal was a sort of debt relief program

for SsangYong which became debt free post transaction. Mahindra got 70% of newly issued shares

and others shareholding was diluted. SsangYong was to remain an independent company listed in

Korea and run by Korean managers. Mahindra raised the entire money by a mixture of cash & debt.

Valuation

Source of Income Statement: Financial Times

If we look at the financial performance of Ssangyong motors and try to find a value for the

organization, we would be hard pressed as financially the company was in turmoil over the last five

1M&M to Pay 2,105 crores to get 70% share in Ssanyong, Economic Times, November 23, 2010

Ssangyong

under debt

of US$ 400

Mn in 2010

M&M gets US$ 378 Mn in

share: New shares were

issued, diluting other

shareholders: M&M gets

70% stake

M&M assumed US$ 85 Mn

debt on its balance sheet

Ssanyong now debt free

M&M to pay US$ 463 Mn,

money used to repay debt

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Synergy Factor 1 2 3 4 5 6 7 8 8

Realization 30% 50% 85% 100% 100% 100% 100% 100% 100%

in INR crorers FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Mahindra UV Sales: actual 2,10,000 2,30,000 2,60,000 3,00,000 3,40,000 3,60,000 3,70,000 3,80,000 3,40,002

Total Input Cost 21,000 23,000 26,000 30,000 34,000 36,000 37,000 38,000 34,000

Material Cost 6,300 6,900 7,800 9,000 10,200 10,800 11,100 11,400 10,200

Material Cost Savings in Crores 95 173 332 450 510 540 555 570 510

R&D Cost 1,050 1,150 1,300 1,500 1,700 1,800 1,850 1,900 1,700

R&D Cost Savings 16 29 55 75 85 90 93 95 85

Total Savings 110 201 387 525 595 630 648 665 595

PV of savings 98 160 275 334 338 319 293 269 240

Total Savings 2326 in Crores

years which is visible in its financial performance over the time. This implies an EV/Sales of 0.78,

which is very high considering relatively healthy companies in auto sectors such as Honda & GM

trade at EV/Sales of 0.40 and 0.16 respectively. However, one can clearly see that CY09 figures

were particularly depressed which might be due to the uncertainty surrounding the company and

77 day long strike. So the value may not have been too high after all. Further any sort of EV/Ebitda

analysis would be meaningless due to –veEbitda. Also, Cashflow based analysis is difficult due to

weak financial condition of the company.

Group 2_ Section B_Mahindra & Ssanyong Deal_M&A.xlsx

Potential Source of Value for Mahindra This deal can lead to savings such as low material cost due to joint sourcing and reduced R&D

expense due to synergies.

The following table summarizes potential savings from the deal.

Assumption Most of the Synergy will be captured by 2019

WACC 12%

Cost Per Unit 10,00,000

Material Cost 30%

Material Cost Saving 5%

R&D 5.00%

R&D Saving 5%

Calculation of the synergies: Our own Analysis

The deal promises a savings of roughly INR 2,400 Crores against the price paid of INR 2,105 crores.

This deal seems to be a good one for Mahindra even assuming the standalone value of Ssanyong

to be Zero.

Deal Valuation template

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To add to this we can expect faster product development cycle for M&M in SUV segment which will

also carry some value which is difficult to quantify. So even if there will be some integration cost not

high as Ssanyong will remain independent, this deal is a winner for Mahindra.

Standalone performance of Ssangyong Motors post deal

Ssangyong Motor Stock since the deal (Source: Financial Times)2

M&M took stake when price was around 10,000 KRW now price is 5,420 KRW, KRW has appreciated

20% against INR, Still looks like a lost case on the surface

Korean Won (KRW)Vs INR (Source: Google Finance)

Korean won has appreciated from 0.04 INR in 2010 to 0.05 in 2012. The stock which was equal to

INR 400 is now worth INR 272 only resulting in loss of 32%. However, we must consider the potential

costs savings worth INR 2400 Crores and other synergies compared to INR 2105 crores paid before

passing a judgement on the decision by M&M to acquire Ssanyong.

2Ssanyong Motors Summary on FT

D

e

a

l

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However, the company has rebounded from depths of 2009 and is on road to recovery.

Source: Financial Times ( all figures in KRW)

A recovering Ssangyong

Gains to the target and the acquirer

Complementary Competencies leading to complementary benefits

Company Competency

Mahindra Sourcing, Marketing, Financially more stable, low-end SUV

Ssangyong Technology, exports to 35 countries, High-end SUV

Post-acquisition two major strategies were employed by M&M and Ssangyong

together

Joint R&D and production strategy:

M&M and Ssangyong jointly began developing a family of six small engines—from 1 litre to 1.6

litres—to power some of their proposed new launches. The three and four-cylinder engines will be

used by both companies irrespective of their origin – leading to sourcing benefits. The engine

development game plan is part of a common strategy to draw upon combined synergies to slash

operating costs and scale up product quality. Major part of this would come from the joint sourcing

strategy discussed below.

Joint Sourcing Strategy:

The objective of this strategy is more about finding the right sources at an optimum cost, the right

technology and quality for our requirements. For example amongst Indian suppliers to Ssangyong's

suppliers are Bharat Forge for crankshafts and Magal Tech for connecting rods. Similarly M&M

meantime started sourcing deals with Korean suppliers Daerim for cylinder heads, GMB for water

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pumps and Shin Han for engine valves. The estimated cost benefits are in the range of 7% - 15% for

both the players

Benefits to shareholders of Ssangyong post acquisition Firstly the cash crunch for Ssangyong was sorted out. M&M infused $200 million in equity

helping Ssangyong to reduce liabilities down from Rs 4,452 crore to Rs 3,550 crore, thus improving the debt-equity ratio from 179.3% to 97.1%. Hence banks restored credit limits and also opened up hedging limits to SUV maker which exports two-third's of its production.

The labor problem was also sorted out. Post the acquisition the labor union in SsangYong Motors has committed to support the restructuring plan, devised jointly by major stake holder M&M and SsangYong management by giving written commitment to stay away from strikes.

The joint sourcing and product development strategies would help Ssangyong to realize long - term cost synergies as discussed above.

Mahindra would help Ssangyong to establish a market for its high end SUVs in India and also extend the marketing strategy support in which Mahindra is comparatively stronger

Post coming into the Mahindra fold, Ssangyong would receive support in setting up assembly bases across BRIC nations. A deeper penetration into the BRIC markets will drive volumes.

The distribution network of Mahindra and Mahindra would help Ssangyong to sell its products in South Africa.

Slowdown in the Korea and China has led to a reduction in volume forecast for Ssangyong but the introduction of new products and entry into new markets such Rexton in India are likely to shore up Ssangyong’s volumes going forward

Benefits to shareholders of Mahindra and Mahindra post acquisition Mahindra majorly benefits from the access to higher-end SUVs, R&D capabilities and a

multination dealer network especially in European and South East Asian countries

Mahindra is now using crash test facilities from Ssangyong in its recently developed research

valley in Chennai

M&M can now sell its product in Russia through Ssangyong's distribution network.

The joint sourcing and product development strategies would help Mahindra to realize long - term cost synergies as discussed above.

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How did the deal proceed?

The following steps outline how the deal unfolded:

1. Aug 7, 2010 - The board of directors of the company authorised submission of a binding bid

to acquire majority stake in SsangYong Motor Co Ltd, South Korea. This happened after

months of due diligence by the firm. The other Indian entity interested to acquire SM -- the

P K Ruia group - which had sought more time to complete the due diligence, also submitted

a bid soon after, and ended up as the reserve bidder.

2. Aug 12, 2010- Mahindra & Mahindra has been named as the preferred bidder to buy

SsangYongand emerge as one of the world's largest SUV makers with a combined turnover

of over $4 billion. This meant M&M had the exclusive right for negotiations. SYMC would not

involve any third party for takeover-related activities.SsangYong fell to a near three-month

low on Thursday on the Seoul stock exchange as traders, disappointed over the exit of

Renault-Nissan, dumped the stock.

3. Aug 23, 2010 - Mahindra & Mahindra signed anMoU to acquire a majority stake in

beleaguered South Korean auto manufacturer. The agreement was followed by a detailed

due diligence process and finalisation of definitive agreements.

4. Nov 23, 2010 -Mahindra & Mahindra Ltd signed a deal to buy South Korea’s money-losing

Ssangyong Motor Co Ltd for 522.5 billion won ($464 million). Investors reacted cautiously

about the signing and raised concerns sbout whether Mahindra would invest in Ssangyong

and help the South Korean company launch successful new model line-ups.

5. Jan 28, 2011 - Large creditors of Ssangyong Motors, including Korean Development Bank,

Barclays Bank, have approved the acquisition of the South Korean sports utility vehicle (SUV)

maker by Mahindra & Mahindra, paving the way for a formal change of guard by the end of

Feb. While Korean Development Bank was the main secured lender, Barclays Bank was

among the large unsecured lenders.The deal cruised through after Ssangyong's creditors

agreed to a haircut to clean up its books. Ssangyong's 613 billion won debt, nearly 100 billion

won more than the total amount paid by M&M, was the biggest and most crucial factor in

Aug 7 - Mahindra

board approves

SsangYong Motor bid

Aug 12 – Mahindra

named preferred

bidder

Aug 23 – Mahindra signs MoU

Nov 23 – Deal Formally Signed

Jan 28 - Formal

consent from secured & unsecured

creditors, 500 odd suppliers

Feb 1 – Court approval

Feb 9 – Formal

Allotment for shares

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this deal.Ssangyong's "unsecured creditors" decided to take a 100 billion won haircut,

allowing the M&M money to clean up the company's books.

6. Feb 1, 2011 – The firm managed to convince the bankruptcy court about the feasibility of its

plans for Ssanyong, and got an amended rehabilitation plan approved.

7. Feb 9, 2011– The firm was formally allotted 70% of the Korean company's total shareholding

and this sealed the entire takeover process.After the transaction, Mahindra & Mahindra

Limited and one other individual became the largest shareholder of the Company, replacing

Peter Beck & partner.

Performance of Mahindra – Post Deal Mahindra & Mahindra has appreciated 20.3% on an annualized basis post the deal (since the week

ending Feb 11, 2011 – Dec 7, 2012) while the benchmark BSE Sensex has increased a mere 5.13%

during the same period. However, it must be kept in mind that Ssanyong comprises a relatively small

portion of Mahindra’s earnings.

However, the Ssangyong stock has fallen by close to half duing the same period, indicating that

M&M is finding it hard to turn the company around.

In FY 2012, the Mahindra Group’s turnover increased 60.69% to Rs. 59,775 cr from Rs.37,181cr in FY

11. The commendable growth in group revenues was due to the inclusion of Ssangyong results.

However, the profit before exceptional elements and tax for the year fell from Rs. 4311 cr to Rs.

4123 cr. This again was due to the inclusion of the financial results of SYMC. The aggregate loss to

Mahindra on account of its holding in SYMC was Rs.502 cr for the year.

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Pre and post merger issues in the deal

Ssangyong’s Troubled Past This deal was not the first for Ssangyong. It had been acquired in the past also. In 1997, Daewoo

Motors had bought a controlling stake in the company. However, due to its own troubles, it had to

sell its stake in 2000. In 1994, Chinese manufacturer Shanghai Automotive Industry Corporation

(SAIC) took 51% stake in SYMC. This deal although helped Ssangyong enter the Chinese market, did

not help solve the financial issues it was facing.

The year 2009 started on the wrong note for Ssangyong, with the company being put into

Recievership after recording $75.42 Million loss in January, 2009. This was followed up with a 77 day

long strike which further dealt a strong blow to the financial situation of SYMC. The relationship with

SAIC also did not develop too well with SYMC blaming the Chinese stakeholder of stealing its hybrid

vehicle technology and failing to live up to its promise of continued investment. The South Korean

prosecutor charged SAIC of carrying out the transfer of Ssangyong’s proprietary technology over to

SAIC.

However, the share prices of the Ssangyong rose by 15% of the news of 4 companies being in the

fray of acquiring it.

Fair Trade Commission’s nod It is clear that the sale of Ssangyong was a distress sale. The Fair Trade Commission of South Korea

approved the deal citing that the deal would enhance competition in the domestic market and

increase Ssangyong’s exports.

However, after it, there were rumours that M&M will not retail SYMC’s staff. However, M&M signed

a tripartite agreement the labour union of SYMC and SYMC, which contains provisions for

employment protection, long-term investment and commitment for no labour dispute.

Amended Rehabilitation Plan In January 2011, Creditors and shareholders of Ssangyong Motor Company passed an Amended

Rehabilitation Plan by an overwhelming majority. 3 The majority vote, much larger than the

mandated Court limit, applied for termination of the Rehabilitation Procedure following repayment

of Rehabilitation Claims. Court approval was granted to terminate the procedure in early March,

2011.

Recent Happenings

India specific happenings Mahindra started reaping direct benefits from the deal in India with the launch of SsangYong’s

Rexton W SUV just before Diwali in 2012. The base version was priced at INR 1.77 mn and the top

model was priced INR 1.97 mn. This was the costliest SUV launched by M&M in India beating the

XUV500, from Mahindra’s own range, priced at INR 1.42 mn. Mahindra has also invested INR 630

3Ssangyong Motor’s Media Centre: Link

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million at the Chakan plant to locally assemble the Rexton. Mahindra now has plans to sell other

SsangYong vehicles, including the Korando C, in India.

Global happenings M&M is planning to enter Brazil, Australia and Italy with the Ssangyong range using its own existing

distribution channel to push the SYMC range. Ssangyong has already used the same strategy by

entering South Africa in April 2012. The major focus of Mahindra with Ssangyong is to enter the

Chinese market. Here M&M wants to exploit Ssangyong’s presence which was built when SYMC was

under SAIC’s control.

In the US however, M&M is planning to go in alone.

Learnings from the project

Key learning from the case:

1) The way a financially unstable company can be acquired debt free, by using acquisition value

to acquire majority stake– Bargain that is only possible when acquiring a distressed company

2) The reaction of stock markets post the deal and how it affects the shareholders.However,

the entire performance of Mahindra can’t be attributed to the deal as the size of deal was

INR 21 bn while the market cap of M&M is close to INR 575 bn.

3) Benefits to short holders in short term and long term. Also how the proposed synergies

realize and benefit the share holders

4) The steps taken by both parties i.e. formulating joint sourcing and product development

strategies to actually materialize the synergies estimated.

5) The valuation of the deal will depend not only the standalone value but the potential value

created by the joint organization. Here, on standalone basis seems that Mahindra overpaid

but on overall analysis the price is okay.

6) Sometime it is better not to completely integrate companies from two different cultures.

Here, Ssanyong was allowed to operate as a separately listed company with Korean

managers as M&M was interested mostly in product portfolios and R&D capabilities only.

This approach has saved lot of integration issues.

7) The steps involved in the takeover, right from due diligence, board and shareholder approval

to structuring the deal to suits all stakeholder needs.

8) The process of obtaining from the creditors, both secured and unsecured and in the case of

a distressed company, from the bankruptcy courts as well.

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References

All links accessed on December 03, 2012:

Financial Times, Database : Ssanyong Motors

Economic Times In-depth Coverage of Mahindra-Ssanyong deal

Google Finance

Mahindra’s Press release on Nov 23, 2010

LiveMint’s News release: South Korea’s watchdog nods Mahindra buy of Ssangyong

WSJ article: Mahindra's SsangYong Unit Launches SUV in India

ET Coverage: Mahindra may not retain Ssangyong staff

NDTV Profit analysis: Mahindra & Mahindra taps Korean arm to crack China