India's Mahindra Gains Control of Italian Design Firm Pininfarina -- Update

By John D. Stoll And Eric Sylvers 

Mahindra Group -- making airplanes, tractors and several other products and services--aims to revive a storied Italian design house, purchasing control of Pininfarina SpA in a deal that could boost the Indian conglomerate's car-making credentials.

Mahindra's EUR25.5 million ($28.1 million) deal to buy 76% of the 85-year old Italian company is a modest financial play in an auto industry where multi-billion-dollar acquisitions are common.

Mahindra's move, however, is billed as an important strategic play for an Indian company already holding an array of auto assets. Known most for its historic relationship with Ferrari NV, Pininfarina's designs have long been held as a standard for others to follow.

Auto companies have been aggressively snapping up smaller firms in hopes of better competing in an industry that is demanding more capital and better engineering resources due to the combination of tougher regulations and the entrance of new players, such as Google Inc. While most of the M&A is centered in the supply or retail sectors, auto makers have been getting more active.

Three German auto makers, for instance, recently closed the $3.1 billion purchase of Nokia Corp.'s digital mapping business. Ford Motor Co. and General Motors Co. have said they are considering acquisitions.

In addition to the Mahindra & Mahindra Ltd. SUV brand sold primarily in India, Mahindra owns South Korea's Ssangyong Motor Co. and the Reva Electric Car Co. Mahindra's auto chief has said the company has global ambitions and Pininfarina has supply relationships and manufacturing capability in Europe and elsewhere.

"This clearly brings in a huge integrated approach we can go down into market with," said CP Gurnani, chief executive of Tech Mahindra, an information technology consulting firm under the Mahindra umbrella. Tech Mahindra will hold 60% of the Pininfarina stake, while the Mahindra & Mahindra Ltd. auto making arm will own the remaining 40%.

In addition to buying controlling stake at EUR1.10 ($1.21) a share from the Pincar holding company, Mahindra will buy additional shares on the open market, inject capital and assume debt obligations. The deal is expected to close by the middle of next year.

About three-quarters of Pininfarina's business is in the auto industry, but it also has clients in other industries. In an interview, Pininfarina Chief Executive Silvio Angori said the firm and Mahindra can now collaborate better on aerospace projects, for instance.

Pininfarina's main business of designing vehicles for a slate of major car companies, including Fiat Chrysler Automobiles, Hyundai Motor Co. and Ford Motor Co. fell into distress starting nearly a decade ago. A combination of the global financial crisis and a trend among car manufacturers to do more of their design in house weighed on Pininfarina's business model.

Sales of more than EUR1 billion ($1.1 billion) in 2007 fell to under EUR100 million ($110 million) last year.

Pininfarina's business also took a hit as manufacturers in a bid to cut costs began using the same car platform to produce a dozen or more models when previously it might have been used for about six, Mr. Angori said

The company's EUR600 million ($660 million) in debt, meanwhile, became unmanageable following the plunge in revenue.

"The low point was at the beginning of 2008 when it wasn't clear if we were going to make it through," said Mr. Angori who will keep his job following the closing of the Mahindra deal.

The top of the crisis for the company coincided with the sudden death of its chairman and chief executive, Andrea Pininfarina, 51. He died in 2008 when a car hit his Vespa scooter near the company's headquarters in northwestern Italy just outside of Turin.

Paolo Pininfarina, Andrea's brother and vice chairman at the time, is now chairman, a position he will continue to hold. The family said it would continue to own 1.2% of the company following the closing of the deal, and executives at Mahindra said they plan to ensure Pininfarina remains an Italian company.

"This company has an Italian soul, Italian heart, Italian people," Mr. Gurnani said.

Write to John D. Stoll at [e-mail] and Eric Sylvers at [e-mail]

(END) Dow Jones Newswires

December 14, 2015 15:32 ET (20:32 GMT)

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