Indian tractor maker Mahindra and Mahindra hopes to strike a deal to buy up to half of British luxury sports car maker Aston Martin by the end of this week, a person with direct knowledge of the matter said on Monday.
The Indian group, the Kuwaiti potential seller and a possible rival Italian bidder have all refrained from official comment and the source acknowledged the dealmaking was complex, with bidders trying to resolve issues around management control:
"There are a lot of moving parts here," the source told Reuters, adding that an initial 40 percent stake could rise to 50 percent for a total price unlikely to top US$400m.
A successful acquisition would give India's dominant utility vehicle maker a global luxury brand, four years after it missed out on Jaguar Land Rover, which went to Tata Motor of India.
Aston Martin sold just 4,200 cars last year but remains a force in popular culture after a half-century of use by agent 007 in the James Bond movies, including this year's "Skyfall".
Funding the purchase would not be a stretch for Mahindra, given its low debt-to-equity ratio of 0.29 at the end of March.
Shares in Mahindra fell more than 3 percent on Monday.
Mahindra bid on Friday by topping an offer from Italian private equity fund Investindustrial that had been agreed on Thursday with Aston's owner, Kuwaiti investment house Investment Dar, sources familiar with the talks said.
Investindustrial bid between GBP£200m and GBP£250m (US$400m) for the stake, a source had said earlier.
Some analysts questioned Mahindra's strategy.
"It's difficult to visualise a tractor and an Aston Martin in the same garage," said Mads Kaiser, a Silkeborg, Denmark-based fund manager with JI India Equity Fund, which owns Mahindra shares in its US$200m Indian equities portfolio.
"The acquisition will broaden their portfolio but doesn't add anything to their tractor or India portfolio," he said.
Mahindra, InvestIndustrial and Aston Martin declined to comment. Investment Dar's chairman and managing director denied to a newspaper on Sunday the Kuwaiti firm had received two offers for its 50 percent stake in the carmaker.
Ford Motor Company sold Aston Martin in 2007 for GBP£479m (US$767m) to Investment Dar and another Kuwait fund, Adeem Investment. Investment Dar went to the market for a US$1bn debt restructuring last year.
Mahindra, the world's biggest maker of tractors, has had mixed success in its overseas forays.
It pulled the plug this year on plans to roll out a pickup truck in the United States, although it has made progress turning around Ssangyong Motor Company, a money-losing South Korean SUV maker it bought for US$460m in March 2011.
Mahindra lost out in the bidding for British luxury carmaker Jaguar Land Rover to larger Indian rival Tata Motors, which paid US$2.3bn in 2008 in a landmark purchase that helped put corporate India on the global map.
While that deal was greeted with scepticism, it has been a winner for Tata, helping offset slowing sales of Tata-branded cars and trucks in India and making up about 70 percent of Tata Motors sales in the June quarter and about 90 percent of profit.
Aston Martin is seen more as a trophy asset, and there are limited obvious ways to leverage the operational or technical capabilities of the respective makers of high-performance sports cars and workaday SUVs and tractors, some analysts said.
"Aston Martin technology is so far beyond anything that Mahindra is doing at the moment that it's hard to see any synergies either way," said Ashvin Chotai, managing director of consulting firm Intelligence Automotive Asia in London.
"The main thing Mahindra would bring to Aston Martin is money and maybe resources but they're not bringing a lot of experience," he said.
Shares in Mahindra ended down 3.35 percent on Monday to close at 922.05 after hitting a record high earlier in the day. The broader market closed 0.16 percent higher.
"We view this bid with caution as we believe the latter will require significant investments in R&D and benefits of technology transfer to M&M's product portfolio is questionable given little similarity between portfolios," Indian brokerage Edelweiss Securities said in a research note.
Mahindra has been looking for acquisitions to expand its portfolio and gain access to new markets.
Earlier this year, it was reported to be interested in buying at least part of Swedish carmaker Saab Automobile, which was later bought by a consortium called National Electric Vehicle Sweden.
Mahindra is headed by Anand Mahindra, a movie buff who studied film before earning an MBA from Harvard University.
While Aston Martin may not be expensive, it could require heavy further investment in research and development.
Costs including research and development and sales account for about 25 percent of sales at Aston Martin, compared with 12-14 percent at luxury car rivals such as BMW, Jaguar Land Rover and Daimler, a Barclays report said.
"Large investments could be required to expand product portfolio and distribution reach," the report said.
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