Kubota Corp, a Japanese global tractor and machinery manufacturer, will acquire 10 per cent equity stake in Escorts as the two companies aim to achieve global leadership by partnering in product development, manufacturing and sourcing, Escorts said in a notification to the exchanges.
Escorts will issue and allot over 12.2 million equity shares through a preferential issue to Kubota at Rs 850 apiece for Rs 1,042 crore, according to its exchange filing. That’s a 48.21 percent premium over Thursday’s share price. Escorts will reduce an equal number of shares held by Escorts Benefit and Welfare Trust to keep the total equity capital of the company unchanged.
Following the deal, Kubota will have right to nominate two non-executive board members on the board of Escorts.
Simultaneously, Escorts will acquire 40 per cent stake in Kubota Agricultural Machinery India, the marketing and sales company of Kubota in India. Kubota and Escorts have a 60:40 joint venture called Escorts Kubota India. It will continue to function in its current form.
Nikhil Nanda, chairman and managing director, Escorts, said the partnership will help Escorts offer innovative solutions and maximise productivity for profitable growth. This collaboration aims at leveraging research and development strengths of Kubota to offer cutting-edge products for domestic and export markets.
“With our manufacturing expertise and strong domestic distribution combined with collaboration with Kubota, we aim to reach our objective of becoming the market leader in farm mechanisation, and address the food security challenge,” said Nanda.
Yuichi Kitao, president and representative director of Kubota, said, through the collaboration the companies will cater to India and other growing economies that require high-end technology and new-age tractors to address growing demands of highly mechanised farming.
“Kubota and Escorts, together, with their leadership in respective geographies will consolidate strengths and technology innovation excellence to emerge as a global leader,” said Kitao.
Escorts shares have been gaining consistently despite volatility in the market. On Friday, it rose 18.55 per cent to Rs 680 apiece on the National Stock Exchange, while on the benchmark Nifty 50 it gained 5.83 per cent to end the day at 8,745.45 points.
One of the leading tractor makers, Escorts’ machinery segment saw a year-on-year growth of 18.8 per cent in February to 8,601 tractors. Of this, domestic sales reported a growth of 16.3 per cent to 8,049 over the same period a year ago.