The deal, coming at over 48 per cent premium on the current market value of Escorts, is one of the largest Indo-Japanese agriculture collaborations and will integrate technological excellence and innovation to provide latest farm mechanization solutions across the globe, the companies said.
Already both the companies have a joint venture Escorts Kubota India in which the Japanese company owns 60 per cent and the rest is with Escorts.
But with the new equity partnership, Escorts will also acquire 40 per cent stake in Kubota Agricultural Machinery India, the marketing and sales company of Kubota India. This is in pursuant of the preferential share allotment to the Japanese company, Escorts said in a statement.
"To further deepen our existing relationship Kubota has decided to pick up 10 per cent equity stake, on a post-capital reduction basis, in Escorts to integrate and deepen their relationship towards achieving their mutual global ambitions," the Escorts statement said.
On completion of the transaction, pending regulatory and shareholders' approvals, Escorts and Kubota will partner to become a leading player in India on one hand and make India a hub for product development, manufacturing and sourcing for global markets, the statement added.
Under the deal, where JM Financial was the sole financial advisor, Escorts will allot 1.23 crore equity shares through a preferential issue to Kubota at Rs 850 a share.
The equity sale will be from the shares held by the Escorts Benefit & Welfare Trust to ensure that the total equity share capital of the company remains unchanged.
Kubota's investment will constitute 9.1 per cent of the equity stake on a pre-capital reduction and 10 per cent on a post-capital reduction basis for a total investment of Rs 1,042 crore, the statement added.
The price represents over 48.2 per cent premium over the last traded price on March 19.
The companies expect the deal to help Escorts in innovation, indigenization of global R&D, and act as a global sourcing hub for Kubota; while the Japanese company gets assured supply of cost-effective products in and for India, joint product development for global markets, and expansion of product range.
Nikhil Nanda, the chairman and managing director of Escorts, said this collaboration aims at leveraging R&D strengths of Kubota to offer cutting-edge products for domestic and export markets, serving customers in new markets and new product lines.
"With our manufacturing expertise and strong domestic distribution combined with collaboration with Kubota, we aim to reach our objective of becoming the market leader in farm mechanization, and address the food security challenge," Nanda said.
Yuichi Kitao, president of Kubota said this strategic investment is a validation of our mutual commitment to offer best in-class technology products for global markets and thereby enhance customer experience.
"With this collaboration, we believe we will cater to India and other growing economies which require high-end technology and new age tractors to address growing demands of highly mechanized farming," he said.
Kubota Corp is a global manufacturing company, specializing in agriculture, water, and living environment products, with a worldwide network spread over 100 countries.
The Escorts counter rallied to Rs 675.20, up 17.73 per cent on the BSE against the benchmark Sensex rallying 5.75 per cent after four days of the blood bath. BEN MRMR