Maruti Suzuki India on Tuesday said its board has approved the issue of shares on a preferential basis to Suzuki Motor Corporation (Suzuki) as consideration for the acquisition of a 100 per cent stake in Suzuki Motor Gujarat.

The transaction is expected to enhance Suzuki’s stake in Maruti Suzuki India (Maruti) to 58.28 per cent from 56.4 per cent.

Suzuki Motor Gujarat (SMG) will become a wholly-owned subsidiary of the company, Maruti said in a regulatory filing.

“The board approved the issue of Maruti equity shares to Suzuki to pay for the SMG shares,” it added.

The total number of securities proposed to be issued to Suzuki as consideration for the acquisition of its 100 per cent stake in SMG shall be decided in a subsequent board meeting, basis relevant valuation reports subject to and in compliance with the applicable regulatory and statutory framework, the auto major stated.

The Maruti board, in its meeting held on Tuesday, evaluated two options for acquiring Suzuki’s equity in SMG.

The board discussed payment in cash and the issue of Maruti shares on a preferential allotment basis, it said.

The impact of both options on the profitability of Maruti, the earnings per share and the dividend payment to shareholders was considered for each year up to 2031, the auto major said.

After going through the data, the board concluded that the option of acquiring SMG shares by issue of Maruti shares to Suzuki would clearly be beneficial to both the minority shareholders as well as the company.

The board also approved seeking of minority shareholders’ nod at an EGM or through postal ballot.

The Maruti board, in its meeting held on July 31, 2023 had approved the termination of the contract manufacturing agreement with SMG and acquiring its shares at a price to be determined in accordance with all applicable laws and regulations.

Brokerage views

An analyst with a domestic brokerage who did not wish to be quoted said Maruti’s decision to acquire the plant through share swap will lead to around 4 per cent equity dilution.

He said the exact valuation of the plant will be known after the company announces the number of shares that will be issued to Suzuki.

However, it is likely to be close to Rs 12,700 crore which was the net book value (as on March 31, 2023) of the plant.

He said given its huge cash reserves, the company could have paid for the acquisition in cash.

When MSIL had announced its intention to acquire the plant, brokerages had differed in their views.

“This decision has come as a major surprise and while its impact is not material for MSIL, we are not sure about the rationale for the same. Simply put, if termination of this agreement provides synergy benefits for MSIL, why was this arrangement with SMG done in the first place?’’, HDFC Securities had said.

Motilal Oswal said the dealwill result in better efficiencyand agility in the company’s decision-making.