India's Tega Buys AIP-Affiliate Molycop For $1.5 Billion EV

Tega Industries Ltd. has agreed to buy control of Omaha-based mining equipment maker Molycop at an enterprise valuation of $1.5 billion, making it the biggest US deal by an Indian company in three years.

The Kolkata-based manufacturer of mining and mineral processing gears will acquire the American Industrial Partners-affiliate in consortium with funds managed by Apollo Global Management Inc., it said in a statement to exchanges on Wednesday. Tega Industries will be the controlling holder of Molycop with a 77% stake and Apollo will own the remaining.

Tega shares dropped as much as 4% in Mumbai on Thursday, the most in about a month, after announcing the deal that’s almost as big as the company’s market value. The company disclosed the transaction after market closed.

The Molycop acquisition will be the biggest purchase in US by an Indian company since Biocon Ltd.’s $3.3 billion deal in February 2022 for Viatris Inc.’s assets, according to data compiled by Bloomberg. 

The upfront payment for the deal will be in cash. Tega’s funding requirement for the transaction is $361 million, including $248 million in equity and $113 million debt, it said in a presentation. Tega’s board will meet on Sept. 13 to consider the fund raising options.

There are concerns about the high debt Molycop carries and equity dilution risk for Tega as it plans to raise funds by selling shares, said Suraj Sonulkar, analyst at Asian Market Securities Pvt. “That said, the deal meaningfully strengthens Tega’s global footprint and offers margin improvement potential over the medium term.”

Additionally, Tega will also make a conditional payment of $120 million for the acquisition within 45 months. The payout will be from internal funds of the US firm that makes metal balls and rods for grinding in the mining industry.

“The debt at the target level is about $1 billion, and the attempt is to bring the leverage down after the transaction closes,” Group Chief Executive Mehul Mohanka said in a interview to broadcaster CNBC-TV18.

Molycop and Tega will have combined presence across 26 global manufacturing sites. The acquisition is expected to be completed by December, subject to conditions and regulatory approvals.

“Integration of a 100-year-old global company with operations across more than 40 countries also poses execution risks,” said Avinash Kumar Pathak, analyst at LKP Securities Ltd.