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The board of directors of Escorts Ltd have approved preferential allotment of 93.64 lakh shares to Kubota Corporation.

News: The board of directors of Escorts Ltd. - an agricultural, construction, material handling, and railway equipment manufacturer - have approved preferential allotment of shares (93.64 lakh shares) to Kubota Corporation at a price of  ₹ 2,000/share, amounting to ₹ 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 the minority shareholders of Escorts Ltd from Kubota Corporation at a price of ₹ 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, and shall expand the product offerings at Escorts. It shall also entail greater sourcing by Kubota from its Indian arm for its other global markets. Kubota’s shareholding is slated to increase from present ~10% to ~16.4% post preferential allotment and can further increase to > 25% depending upon the response to the open offer.

Impact: Positive