DECODING THE PRICE GAP

Why did SML Isuzu sell at a discount to Mahindra & Mahindra?

- ASTHA ORIEL

IN A MOVE to strengthen its position in bigger commercial vehicles (CVs), Mahindra & Mahindra (M&M) has decided to acquire a nearly 59% stake in SML Isuzu (44% from Sumitomo Corporation and 15% from Isuzu Motors) for ₹555 crore (at ₹650 per share).

However, what has raised eyebrows is the price at which M&M has decided to make an open offer for the 26% stake—₹1,554 per share, 153% more than what it is paying to Somitomo and Isuzu. No wonder the stock fell 10% the day after the announcement of the deal.

But why this difference in offer prices? “There is an old saying that the value is in the eye of the beholder. We wanted to ensure that it’s fair overall, and it’s a valuation that makes sense for us as well. We have a lot of confidence in this business. It meets the thresholds we have,” says Anish Shah, Group CEO, M&M Ltd, which will pay ₹1,400 crore, assuming the open offer is fully subscribed, for around 85% stake.

Shah’s argument does not fully explain the huge gap between the offer price and the first tranche acquisition. Analysts say the sale is part of Sumitomo’s broader strategy to exit non-core businesses.

For the global conglomerate, which had revenues of more than $38 billion in the first nine months of FY24, SML-Isuzu—which reported a revenue from operations of ₹2,179 crore in FY24—was a small part of the overall scheme of things. For M&M, though, it holds the key to a lucrative future.