NEW DELHI, May 12: The Rajan Nanda-controlled Rs 1,700-crore Escorts Ltd is picking up a 49 per cent equity stake in Long Manufacturing Incorporated of the United States. This reportedly is the firm's first foreign acquisition.Escorts is initially acquiring a 32.66 per cent stake for $6 million in the United States company, which has a huge distribution network for sale of tractors and agricultural products. Escorts will buy an additional 16.34 per cent stake in the company, later. It can exercise the option of the additional amount till October, 1999. The total cost of the acquisition will be $9 million.
The company has submitted its proposal to the Reserve Bank of India and other agencies for bagging formal approvals. The company's board cleared the proposal recently. Shareholders approval will be sought in the annual general meeting, sources said. The joint venture, which will undertake marketing and distribution of the tractor major, will be in place by November, sources said.
Long ManufacturingInc has a wide distribution network in the United States, with 300 to 400 dealers, which the Nandas hope to cash in on. The company is involved in agricultural euipment, tractors and tobacco barns. Price Waterhouse has completed the due diligence of the deal, while the legal process is still to be complied with, sources said. Escorts expects a 10 to 15 per cent of its total turnover to come from exports to these and other markets over the next three years. It also plans to target markets in Turkey, Poland and South Africa, besides the United States. The company kicked off its exports in August, and is now shipping 150 tractors a month. Earlier, the company had a distribution arrangement with Long Manufacturing, which was handling the company's exports. Exports are expected to go up in the next few months.
To support the growing demand, Escorts is setting up a new-generation plant near Pune at an investment of Rs 175 crore with a capacity of building 15,000 tractors a year both for export and domesticmarkets.
The combined production volumes of the plants at Faridabad and Pune will take up the capacity to nearly 80,000 units, which will include tractors in the range of 30 to 80 horse power. The company expects a significant demand for tractors, which could materialise during the next three years, into exporting nearly 15,000 tractors a year. Escorts is also setting up a joint venture with the Carraro group of Italy, a world leader in axles and transmissions. Carraro holds a majority stake of 51 per cent in the joint venture, Carraro India, while the balance is held by Escorts. The products, to be manufactured by the joint venture, will be used in the production of tractors of over 50 horse power.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
