Chennai : Multi-product company Tube Investments of India (TI), part of the $4.4 billion Murugappa Group, Friday announced plans to acquire promoter holdings of gear maker Shanthi Gears.
“We have signed a share purchase agreement to acquire the 44.12 percent stakes held by promoters of Shanthi Gears for around Rs.292 crore. We will make an open offer for acquiring additional 26 percent as per statutory requirements,” L.Ramkumar, TI managing director, told IANS.
According to him, TI has offered Rs.81 per share of Shanthi Gears and the total outlay for the acquisition, including the 26 percent open offer, is expected to be around Rs.464 crore.
“We are yet to finalise the scheme of funding the acquisition. What will be the mix of debt and internal accruals are yet to be finalised. In two months time the whole deal will be over,” Ramkumar said.
The Coimbatore-based Rs.178 crore turnover Shanthi Gears manufactures gears, gear boxes, geared motors and gear assemblies for various industries for variety of applications.
It has six manufacturing units around Coimbatore, including a foundry division. The company closed last fiscal with an after-tax profit of Rs.28 crore and is debt free.
According to Ramkumar, discussions are on with the promoters of Shanthi Gears on board membership for TI representatives.
Asked about the rationale behind the acquisition, Ramkumar said: “TI makes chains (automotive and industrial) and sprockets. In the long run, we want to be in the power transmission business and Shanthi Gears is an apt fit in that plan. Having gear boxes would complete our range of products.”
M.M. Murugappan, chairman of TI and vice chairman of Murugappa Group, said Shanthi Gears is one of the largest organised players in India in the gears segment and its product profile is targeted towards more of niche products and greater customer retention.
“We hope to leverage our understanding of the engineering space and our existing customer relationships to help scale the business further,” Murugappan said. Ramkumar said the move would also derisk TI from depending more on the automotive sector for its chain business.
He said Shanthi Gears is now operating at a low level and has the potential to scale up further.
On how the deal happened, Ramkumar said: “We came to know that the promoters of Shanthi Gears wanted to exit. We visited the company and negotiated the deal.”