Shares of Escorts Ltd. jumped to a record high after Kubota Corp. agreed to raise its stake and become a co-promoter of the tractor maker.
The Japanese agriculture and heavy equipment maker will increase its stake to 44.80% from 9.09%, according to an exchange filing. It will acquire shares worth Rs 1,872 crore through a preferential issue and make an open offer to buy up to 26% from public shareholders, both at Rs 2,000 apiece.
After the transaction, Kubota will become a joint promoter, the filing said. The company will be renamed Escorts Kubota Ltd.
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The Nanda family will continue to own 11.8% of Escorts.
“This will enable both the companies to enhance the value they have created by leveraging each other's strengths—be it in technology, market access, manufacturing processes or engineering excellence,” Nikhil Nanda, chairman and managing director at Escorts, said in the statement.
The strategic partnership, the company said, will open opportunities at global level and bring sizeable capital infusion, paving the way for the next phase of growth and expansion.
According to the Japanese firm, the financial impact of the transaction is currently under examination.
Nanda will continue to serve as Escorts' managing director. He will also be appointed to the position of senior managing executive officer and general manager of value-innovative farm and industrial machinery strategy and operations (a newly-created position) of Kubota.
Kubota and Escorts' joint sales subsidiary Kubota Agricultural Machinery India Pvt., and joint manufacturing arm Escorts Kubota India Pvt. will be merged with Escorts Kubota Ltd.
JM Financial acted as the financial adviser to Escorts.
Shares of Escorts jumped 9.99%, the biggest intraday gain in more than 14 months, to a record Rs 1,793.9 apiece.
Of the 27 analysts tracking the company, 13 maintain a 'buy' and seven each suggest a 'hold' and a 'sell', according to Bloomberg data. The 12-month consensus price target implies a downside of 11.9%.
The stock's trading volume was 11.1 times the 30-day average volume for this time of the day. The relative strength index was 72, suggesting it may be 'overbought'.
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