Maruti to merge Suzuki Powertrain with self

Moneycontrol Bureau

Maruti Suzuki's board has approved a proposal to merge Suzuki Powertrain India (SPIL) with the India's largest passenger car maker. SPIL supplies diesel engines and transmissions for Maruti Suzuki's vehicles. It is a sbusidiary of Maruti's parent Suzuki Motor Corp (SMC) of Japan. SMC holds 70% stake in SPIL, with the remaining 30% held by Maruti Suzuki. As per the proposed terms of the merger, SMC will receive one share of Maruti Suzuki (of Rs 5 each) for every 70 shares ( of Rs 10 each) it holds in SPIL. Maruti Suzuki plans to make a fresh issue of 13.17 million shares to SMC in lieu of SMC's 70% stake in SPIL. Post the merger, SMC's stake in Maruti Suzuki will go up to 56.2% from 54.2%, the company said on Tuesday. "With the merger, Maruti Suzuki will be able to bring its entire diesel engine capacity under a single management control. All key initiatives to strengthen the business, including sourcing, localization, production planning, manufacturing flexibility and cost reduction can be controlled, monitored and improved by the Maruti Suzuki management," it said. The proposed merger also promises synergies in areas like finance, capital structuring, administration and reduction of transaction costs, Maruti Suzuki said. However, it added that there are no plans to cut jobs post the merger. Demand for diesel cars has surged in India over the last few quarters, after several rounds of petrol price hikes widened the gap between the two fuels. There is a long waiting list of up to 6 months for some of Maruti Suzuki's diesel models like Swift and Ertiga. Apart from getting diesel engines from Suzuki Powertrain, Maruti has a seperate deal with Italian car maker Fiat to source one lakh 1.3 litre diesel engines for three years. In March, it had announced plans to set up a diesel engine plant in Gurgaon with an investment of around Rs 1,700 crore.  Maruti Suzuki expects all the necessary regulatory approvals and legal requirements for the merger of SPIL will be completed by Dec-end this year and once the merger is approved, SPIL's account books will be merged with Maruti Suzuki, effective April 2012. Maruti Suzuki shares were trading up 1.2% at Rs 1,123.95 on NSE in afternoon trade post the announcement. Nachiket Kelkar
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