Japanese tractor maker Kubota Corp will acquire a 10% stake in Escorts Ltd for Rs 1,042 crore ($138.5 million) as part of a broader deal, the Indian engineering and farm equipment maker said on Friday.
Escorts said in a statement it will issue about 12.26 million shares on a preferential basis to Kubota at Rs 850 apiece. This is a premium of about 48.21% over the company’s last traded price on Thursday.
Along with the preferential issue, the Faridabad-based Escorts will also acquire a 40% stake in Kubota Agricultural Machinery India Pvt. Ltd, the Japanese group’s domestic marketing and sales arm.
Another existing joint venture between the two – Escorts Kubota India Pvt. Ltd (EKI) – will continue to operate as usual. EKI is operated on a 60:40 ratio basis between Kubota and Escorts.
The stake acquisition by Kubota will allow Escorts to increase its product innovation through global research and development. The company will also act as a global sourcing hub for Kubota, it said in the statement.
“This collaboration aims at leveraging R&D strengths of Kubota to offer cutting-edge products for domestic and export markets, serving customers in new markets and new product lines,” Nikhil Nanda, chairman and MD at Escorts, said.
Separately, Kubota president and representative director Yuichi Kitao said the group’s strategic investment would help it cater to India and other emerging economies concerning their mechanized-farming needs. Kubota has a presence in 100 countries and specializes in agriculture, water, and living environment products.
Shares of Escorts surged 17.7% on Friday to close at Rs 675.20 apiece in a Mumbai market that rallied 5.75% after slumping in previous sessions in the wake of the global coronavirus pandemic. The company currently has a market capitalisation of around Rs 8,276.39 crore.
Originally set up in 1960, Escorts operates in sectors such as agricultural machinery, material handling, construction and railway equipment. The company posted consolidated net sales of Rs 6,262.02 crore for the financial year ended March 2019, with profit-after-tax figures of Rs 473.07 crore.