Japan's Kubota to be in the driver's seat at Escorts

Japanese agriculture and heavy equipment firm Kubota Corp will invest ₹9,400 crore in Escorts and increase its stake in the Indian tractor manufacturer up to 53%, taking also its joint control, the companies said on Thursday. Kubota currently holds a 9.9% stake in Escorts. The move to take the driver's seat in its half-a-decade-old alliance is part of the Osaka-based conglomerate's strategy to double down on the growth potential of the tractor market in India.

Escorts will issue 9,363,726 equity shares at ₹2,000 each to Kubota on a preferential basis, making the Japanese firm a joint promoter of the company along with the existing promoters, the Nanda family.

After the preferential share issue, Kubota's stake in the company will rise to 14.99%. In addition, the Japanese firm will make an open offer to public shareholders to buy another 26%. The remaining stake will come from the cancellation of treasury shares, which Escorts' board has decided to consider.

Current promoter Nanda family's holdings will continue to remain unchanged after the transaction at 11.6%. The process of preferential allotment and open offer is expected to complete by March 2022.

Shares in Escorts surged 10.6% to ₹1,802.90 on Thursday, in what could be one of its best single-day gains in 52 weeks. The stock has appreciated 46.68% in the last three months, in anticipation of this transaction about which ET first reported on September 22.

"The transaction will create one of the largest Indo-Japanese agriculture collaborations to attain global leadership in the farm equipment sector," the companies said in a statement. "The partnership with Kubota will enable Escorts to have access to global best practices and state-of-the-art research and development facilities which will complement Escort's proven strength in engineering and execution in India and across the world."

JM Financial was the financial adviser, while Transaction Square acted as the transaction adviser and DMD Advocates acted as the legal adviser to Escorts in the deal.

"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," Escorts chairman Nikhil Nanda said.