Motherson Sumi Systems Approves Business Rejig Plan
The Board of Directors of Motherson Sumi Systems Ltd. (“MSSL” or the “Company”) at its meeting held has approved a group reorganization plan with the objective of creating value for the shareholders of MSSL. The reorganization realigns the interests of all its stakeholders and creates a simplified corporate structure for the growth of businesses across product portfolios within auto components space and allied operations.
The reorganization plan approved by the respective boards of MSSL and Samvardhana Motherson International Limited (“SAMIL”) among other things, entails demerger of Domestic Wiring Harness (“DWH”) business from MSSL into a new company which is in the process of being incorporated as a wholly owned subsidiary of MSSL (“New Co.”) and subsequent merger of SAMIL into MSSL to consolidate 100% shareholding in Samvardhana Motherson Automotive Systems Group BV (“SMRP BV”) as well as to bring all auto component and allied businesses in SAMIL under MSSL.
The proposed reorganization aims to:
To give effect to the proposed reorganization, the Board of Directors of MSSL in its meeting today approved the following (“Transaction”):
Step 1: Demerger of DWH business of the Company into New Co., which will eventually be listed, with mirror shareholding as that of the Company
Step 2: The Board also approved the merger of SAMIL, the principal holding company of Motherson Group and promoter of MSSL, into MSSL
The Transaction is to be effected pursuant to a Composite Scheme of Amalgamation and Arrangement (“Scheme”) and is subject to receipt of regulatory and other approvals inter-alia approval from shareholders, creditors, NCLT etc. as may be applicable. The Transaction is likely to be completed by Q2FY22.
Commenting on the Transaction, Vivek Chaand Sehgal, Chairman, MSSL said, "We are happy to receive approval from the Board of Directors for the Scheme. The simplification of group structure has been a long-standing request from our shareholders and the proposed reorganization is a step in that direction. The Transaction helps create strong business platforms under the Motherson umbrella which will enhance stakeholder value for the long term."
Laksh Vaaman Sehgal, Director, MSSL said, “This Transaction provides MSSL shareholders with the opportunity to participate in 100% value of SMRP BV and also brings all auto related businesses under listed entities, which aligns interest of all stakeholders. It demonstrates our commitment towards taking actions that meet expectations of our stakeholders. The Transaction further strengthens our position as a leading, globally diversified and preferred auto component supplier that serves the world’s most admired brands.”
The Company will now be taking necessary steps to give effect to the Scheme including regulatory approvals as required as well as approval of shareholders of the Company.
Strategic Rationale
The Transaction accomplishes the long-standing request from the Company's joint venture partner, Sumitomo Wiring Systems (“SWS”), to keep its participation focused to DWH business in India which is its core area of interest.
The Transaction also enables pursuance of independent strategic priorities for the listed entities, while at the same time entities continue to enjoy the benefit of the parentage of the Motherson Group as well as its strategic partner SWS. The Transaction provides greater flexibility to raise capital (debt and equity) at respective entities basis their requirement.
For MSSL shareholders, the Transaction brings all auto component businesses under listed entities and offers greater operational and financial flexibility to pursue organic/ inorganic opportunities in domestic and global arenas. The Transaction also helps capture full benefit of group synergies by bringing support functions (like logistics, travel, IT etc.) in-house thereby improving cost structure by bringing down overheads through best practices.
The merger of SAMIL into MSSL is expected to be EPS accretive in FY22, the first year of merger.
Demerger of DWH into New Co. will create:
Merger of SAMIL into MSSL will create a strong listed entity having:
New Co. will also enter into supply, sourcing and shared services agreements with MSSL, MSSL’s subsidiaries and joint ventures, and SWS. The proposed arrangements will provide continuity of scale and cost benefits for all entities and minimize transaction costs.
Advisors
Axis Capital Ltd. and DSP Merrill Lynch Limited are acting as financial advisors and fairness opinion providers to the Company and Kotak Investment Banking is acting as financial advisor and fairness opinion provider to SAMIL. Price Waterhouse & Co. LLP and BSR & Associates LLP have recommended the share entitlement ratio for the demerger and share exchange ratio for the merger to the board of directors of the Company and SAMIL. AZB & Partners are the legal advisors to the Transaction.
