Maruti to buy Suzuki plant in Gujarat with shares, not cash

Issue of new shares for car plant will lead to equity dilution of around 4% for Maruti Suzuki

- Alisha Sachdev

Maruti Suzuki India Ltd (MSIL), the country’s largest carmaker, said on Tuesday it will acquire Suzuki Motor Corp.’s small car manufacturing facility in Gujarat by issuing preferential shares instead of paying cash.

The issuance of new shares will lead to an equity dilution of around 4% in MSIL, and increase Suzuki’s ownership in the New Delhi-based carmaker by 1.8% to 58.28%, based on the current market price and Suzuki Motor Gujarat (SMG) plant’s book value of ₹12,755 crore.

Consequently, the unit will become a wholly-owned subsidiary of Maruti Suzuki, and its key management positions, some of which are currently held by Suzuki employees from Japan, will be taken over by the Indian team.

With this deal, Maruti Suzuki will aim to enhance its operational and organizational efficiencies, and double its manufacturing capacity by consolidating production within a single management entity.

According to Maruti, the share swap approach will minimize adverse effects on earnings per share (EPS) and profits compared to a cash transaction, as it would have resulted in a loss of interest income.

To be sure, Maruti currently has cash reserves of about ₹46,800 crore.