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Escorts: Company on-board Kubota Corporation (Japan) as co-promoter

News: The board of directors of Escorts have approved preferential allotment of shares (93.64 lakh shares) to Kubota Corporation at a price of  Rs.2,000/share, amounting to Rs.1,873 crore. Consequent to this fund infusion, Kubota will now be a joint promoter of the company. This transaction will trigger an open offer for minority shareholders of Escorts from Kubota Corporation at a price of Rs.2,000/share.

Views: We see this as a positive development for the company wherein Escorts will now be renamed as Escorts Kubota Ltd. With Kubota’s know-how in the farm equipment, mechanisation and construction equipment space, we see this as a winning combination that will expand the product offerings at Escorts. It will also entail greater sourcing by Kubota from its Indian arm for its other global markets. Kubota’s shareholding is slated to increase from the present ~10% to ~16.4% post preferential allotment and can further increase to > 20% depending upon the response to the open offer and reduction of treasury shares from the company’s book.

Impact: Positive