THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT JAIPUR

Assignment of Mergers and Acquisition on Joint Venture Joint Venture Between Mahindra and Renault

Submitted To : Mr. Prashant Sipani Submitted By : Sushant Bhandari

Introduction

Mahindra & Mahindra Limited

Mahindra & Mahindra LimitedBSE: 500520 is part of the Mahindra Group, an automotive, farm equipment, financial services, trade and logistics, automotive components, after-market, IT and infrastructure conglomerate. The company was set up in 1945 in Ludhiana as Mahindra & Mohammed. Later, after the partition of India, Malik Ghulam Muhammad returned to Pakistan and became that nation's first finance minister. Hence, the name was changed from Mahindra & Mohammed to Mahindra & Mahindra in 1948. Initially set up to manufacture general-purpose utility vehicles, Mahindra & Mahindra (M&M) was first known for assembly under licence of the iconic Willys Jeep in India. The company later branched out into manufacture of light commercial vehicles (LCVs) and agricultural tractors, rapidly growing from being a manufacturer of army vehicles and tractors to an automobile major with a growing global market. At present, M&M is the leader in the utility vehicle (UV) segment in India with its flagship UV, the Scorpio (known as the Mahindra Goa in Italy). It is a worlds fourth largest tractor manufacturer and it also the major defence supplier.it hasemployeed the 30000 employees and the main operating divisions are Automotive division and Farm Equipment division

Renault
Renault S.A. (Euronext: RNO) is a French automaker producing cars, vans, buses, tractors, and trucks, and, in the past, autorail vehicles. Due to its alliance with Nissan, it is currently the world's fourth largest automaker.[2] Headquartered in Boulogne-Billancourt,[3] Renault owns the RomanianautomakerAutomobile Dacia and the Korean automakerRenault Samsung Motors. The Lebanese-BrazilianCarlos Ghosn is the current CEO. The company's most successful car to date is the Renault Clio and the Renault Laguna, and its core market is France The company is known for numerous revolutionary designs, security technologies,and motor racing. Founded February 25, 1899 by Louis Renault and his brothers. France's second-largest carmaker and worlds tenth. Products- Automobiles, Trucks and Buses. Production :25,31,500 in 2006 A group with industrial and commercial presence in 118 countries Only vehicle manufacturer to have eight cars with the maximum five-star Euro NCAP rating. First to produce Sedan Cars. 8 times winner of F-1 Constructor title.

Joint venture details of Mahindra Renault :

In February 2005 Mahindra & Mahindra and Renault decided to join forces toproduce and commercialize Logan in India. The joint venture is a 51:49partnership between M&M and Renault. An investment of 125 million euros (Rs.700 crore) was announced to set up a production capacity of 50,000 cars peryear. The Logan would be produced at M&Ms state of the art factory located inNashik, which offers a stamping shop, a paint shop with a top quality pretreatment and an assembly line specific for the Logan.The JV went on stream on September 1, 2006 with the trial production of Logan.The assessment of all suppliers has been done by Renaults quality team.Upgradations at the level of suppliers for the new product are being implementedby the Mahindra Renault team. All specific equipment required for production has been installed in the body shop, the paint shop and the TCF line.Thetrialvehicles have been put through thorough durability testing on Indian roads,besides accelerated tests on the Renault test tracks.The first phase of road trialswas done in MayAugust2005. Some vehicles completed more than 50,000 kmon Indian roads and passed the rigors of Indias climactic changes. The second phase of validations was completed at Renault test tracks.In November 22, Mahindra & Mahindra and Renault decided to extend theirstrategic alliance and signed another memorandum of understanding to set up agreenfield facility with a capacity of 500,000 units per year within 5 years. In this alliance, M&M and the Renault Nissan alliance would each hold 50 percent stake. The driving force behind this announcement was to consolidate the Mahindra Renault joint venture formed exclusively for the Logan. A range of Mahindra as well as Mahindra Renault products suited to the requirements of Indian customers will be manufactured at the new greenfield production site under the direction of Renault and Mahindra. The production site will include a vehicle assembly plant, shared between the two partners. Renault also has plans to set up a powertrain factory. Production is expected to begin mid2009, with an initial installed production capacity of 400,000 vehicles per year. The manufacturing site is yet to be finalised. The product range will be marketed by Mahindra Renault and sold through the extensive and well established Mahindra channel network throughout India. Mahindra Renault Limited is a JV between India's largest Utility vehicle manufacturer Mahindra & Mahindra Limited&Renault S.A. of France (51% & 49% respectively). The joint venture was formed in 2007. The JV has set up a state-of-the-art manufacturing plant in Nashik, Maharashtra. On April 15. 2010 Mahindra & Mahindra and Renault together announced restructuring plans by which Mahindra would buy Renault's share in the joint venture and Renault would continue to provide the support for M&M through license agreement and continue to be supplier of key components.

Manufacturing facilities

Mahindra Renault Limited currently has a manufacturing plant in Nashik, Maharashtra with a capacity of 50,000 vehicles per annum. Renault-Nissan have invested Rs 4,500 Crores to build a manufacturing plant in Chennai which will have a capacity of 400,000 vehicles per annum divided equally between Mahindra Renault Limited and Nissan Motors India Private Limited.

Models
Current
1. Renault Logan

Sales and service network

Mahindra Renault Limited uses Mahindra & Mahindra Limited's network for the sales and service of Renault branded vehicles in India. It currently has approximately 137 dealerships across 120 cities through outIndia.

Mahindra buys outs Renaults stake in the MRPl joint venture:

Renault has tie-ups with Nissan as well as Mahindra. Renault holds a 49 percent stake in its joint venture with Mahindra & Mahindra (M&M) which in turn holds a 51 percent stake. And now Mahindra and Renault have announced plans for the restructure of Mahindra Renault (MRPL) with M&M taking over the operations of the company.

M&M will buyout Renaults 49 percent share in MRPL making the company 100 percent Mahindra group owned. This also means that M&M will be solely responsible for the Logan in the Indian market. The Renault name and logo will continue to be used on the Logan until the end of the calendar year. Renault will continue to support M&M and the product under a License Agreement and supply of key components, which includes the engine and transmission. The aim of this restructuring is to ensure continuity of the company and go forward on the positive customer equity existing for the Logan in India. Renault is fully committed to the success of the Logan in India where it has achieved a high level of customer satisfaction. We will continue to extend our support to Mahindra to help it gain market share, We reiterate our long term commitment to India through the recent inauguration of our manufacturing facility in Chennai and our plan to launch a range of Renault cars between 2011 and 2015. The new agreement between Mahindra and Renault will give us the opportunity to chart out a new strategy to help drive the Logan brand in India which will also include engineering changes, in keeping with customer requirements, As for the fate of the Logan thereafter, M&M will give the car a Mahindra owned brand name before donning the Mahindra logo on it. There will be refreshing modifications on the car at this time and Mahindra will implement further localizations to reduce cost. Other vehicles which are built on the Logan platform by Renault globally are not included in this new agreement, and M&M and Renault will continue to work together in many aspects for mutual benefit.

Mahindra and Renault announced on Friday the restructuring for their 51:49 joint venture,
Mahindra Renault Pvt Ltd, through which the Logan car is manufactured. Under a Framework Agreement, which was signed earlier this week by senior executives of both companies, the parties have in principle agreed that M&M will take over the operations of the company. Renault will continue to support M&M and the product through a License Agreement and supply of key components, including the engine and transmission. As previously stated by leaders of both companies, the aim of the restructuring is to ensure continuity and build on the positive customer equity that exists for the Logan in India "Renault is fully committed to the success of the Logan in India where it has achieved a high level of customer satisfaction. We will continue to extend our support to Mahindra to help it gain market share," said Katsumi Nakamura, executive vice president, Asia/Africa for Renault sas. "The new agreement between Mahindra and Renault will give us the opportunity to chart out a new strategy to help drive the Logan brand in India which will also include engineering changes, in keeping with customer requirements," said PawanGoenka, president, automotive and farm equipment sectors, Mahindra & Mahindra Ltd. Key features of the restructuring are:
y y y

Mahindra & Mahindra will buy Renault's equity stake in MRPL, resulting in MRPL becoming a 100 per cent Mahindra group-owned company; M&M will be responsible for the management of the Logan in the Indian market; The Renault name and logo will continue to be used on the Logan till the end of this calendar year;

Over the course of a transition period of about 18 months, M&M will:

y y y

Rename the car to a Mahindra owned brand name and the car shall then only display the Mahindra logo; Create a refresh and other modifications in line with customer expectations; Execute additional localisation to reduce costs

Other vehicles built on the Logan platform by Renault globally, such as the Sandero, are not included in this new agreement. M&M and Renault will continue to work together on an ongoing basis to explore areas of synergy for mutual benefit on several fronts. Mahindra Renault Pvt Ltd was established as a 51:49 joint venture between M&M and Renault sas in 2005 to manufacture and sell the Logan car.

The Logan is manufactured at Mahindra's plant in Nashik and sold through more than 100 Mahindra dealer outlets around the country. The Logan was commercially launched in the Indian market in July 2007 and has more than 44,000 satisfied customers in India today. More than 2,600 units have also been exported to South Africa and Nepal

Mahindra Renault venture posts Rs 490-cr loss

Following a 48 per cent fall in sales, Mahindra Renault Pvt Ltd has posted a loss of Rs 490.21 crore on a gross turnover of Rs 741.17 crore during 2008-09. The company, a 51:49 joint venture between Mahindra & Mahindra (M&M) and Renault, of France, makes the Logan entry-level sedan at M&Ms Nashik plant.
Drop n sales

According to M&Ms 2008-09 annual report, the joint venture sold 13,423 cars during the year under review. In the previous year, the company sold 25,891 cars. In the first three months of this financial year, sales of the Logan have fallen nearly 68 per cent to 1,478 units from 4,595 units in the corresponding period The annual report attributed the decline in Logans sales to increased competitive activity in its market segment. Industry sales in the C-segment, where Logan competes, increased 12 per cent in financial year 2009, the annual report said. The C-segment itself grew 12 per cent last financial year, totalling 2.46 lakh units. M&Ms share in this segment dropped from 11.8 per cent in 2007-08 to 5.5 per cent last year.
Light Commercial Vehicles

M&M manufactures light commercial vehicles for another joint venture Mahindra Navistar Automotives Ltd and the Logan for the joint venture with Renault, on a contract basis. It also distributes these LCVs and cars for the two joint venture companies respectively under a distribution contract for a fee. Automobile industry experts say that Mahindra Renault Pvt Ltd will have to take a decision quickly on how long it is going to continue making the Logan. M&M has a capacity to make 50,000 units of the Logan a year, but with falling sales that capacity will be largely unutilised, According to the annual report, the company maintained its automotive vehicles sales. It sold a total of 220,213 vehicles 44,533 three-wheelers, 8,603 LCVs and 13,423 cars recording a growth of 0.6 per cent over the previous year. The company posted a consolidated profit after tax of Rs 1,405.41 crore down 10.5 per cent over the previous year. Its net revenue was up 10 per cent at Rs 26,919.8 crore. M&M has been aggressive in overseas acquisitions in the last two-three years, particularly with regard to the auto component business. Information provided in its latest annual report shows

that a number of these overseas subsidiaries, particularly in Europe in the forgings business, have reported losses. The acquisitions completed last financial year include Engines Engineering, Italy a twowheeler design company; MetalcastelloS.p.A., a gear manufacturing company in Italy; and, a second tractor joint venture in China. M&M formed a Systech sector, under which its overseas auto component acquisitions fall into.

Critisism
Mahindra Renault Limited has been criticised because of their only model Renault Logan's boxy looks and awkward ergonomics. The car although is a right hand drive vehicle but has many features and functions of a left hand drive vehicle. The power windows switches are placed on the centre console instead of the usual placement on the driver's side door. The windshieldwipers work in a direction opposite to the standrad working of windshield wipers found on other branded vehicles in India. The Hood release lever is located on the passenger side instead of the driver's side

Renault exits M&M joint venture for Logan:

Renault and M&M had formed a joint venture in India and had introduced Mahindra Renault Logan in the Indian market. The model had given disappointing sales figure to the new joint venture company. Moreover, M&M and Renault had growing tiffs between them since past one year. Now Renault has announced that it will quit the joint venture, a development which marks the end of months of differences between the two companies. Renault will continue to support M&M with license agreement and supplying key components for its product Logan in India. The license agreement will be solely for Logan models only and not other models built on the same platform. Renault has been planning to introduce Sandero in the Indian market which will be built on Logan platform. Renault will sell its 49 percent stake in Mahindra Renault Pvt. Ltd and Mahindra and Mahindra will own the company. MRPL will become a 100 percent owned subsidiary company. "The new agreement between Mahindra and Renault will give us the opportunity to chart out a new strategy to help drive the Logan brand in India, which will also include engineering changes, keeping in with customer requirements," M&M President Automotive PawanGoenka said. M&M will continue to sell Logan in India for next coming months but after 18 months the car will be renamed and will sport only Mahindra logo.