Mahindra to Buy 51% in Peugeot Motocycles in Scooter Push

By Siddharth Philip and Mathieu Rosemain

Mahindra & Mahindra Ltd. (MM) offered to buy a 51 percent stake in French carmaker PSA Peugeot Citroen (UG)’s scooter business, giving the Indian tractor manufacturer access to European technology to expand in the models.
The Mahindra Two Wheelers Ltd. division will invest 15 million euros ($18.9 million) in Peugeot Motocycles (PMTC), the Mumbai-based company said today in a filing.
Mahindra, which began making scooters in 2008 after acquiring Kinetic Motor Co., is seeking to compete with Hero MotoCorp Ltd. (HMCL) and Honda Motor Co. (7276) in India’s growing two-wheeler market. Mahindra also wants to expand deliveries of the models elsewhere, seeing a “huge” opportunity globally, Executive Director Pawan Goenka said at a press conference.
“It’s a fairly straightforward rationale for the deal” because of Peugeot’s long history in scooters and the unit’s “very strong technology center,” Goenka said at the Mumbai briefing. The French nameplate would constitute a premium product, with Mahindra’s brand targeting the mass market.
The deal is among the first major strategic steps
by Peugeot Chief Executive Officer Carlos Tavares, who took charge in March and is seeking to return Europe’s second-largest automaker to profit. The Paris-based company’s scooter business has posted losses for a decade as it struggles to compete with Piaggio & C. SpA (PIA), the European leader in the models.

Growth Markets

Industrywide sales of scooters in the year ended March surged 23 percent in India, where two-wheel vehicles outsell cars by about six to one. While Mahindra may bring the Peugeot Scooters brand to India, the company expects 75 percent of market potential to be outside that country and Europe, with growth particularly likely in Vietnam, Goenka said.
Peugeot fell as much as 1.9 percent and was trading down 1.2 percent at 10.20 euros as of 11:25 a.m. in Paris. Mahindra dropped 2.9 percent to 1,350 rupees in Mumbai.
PMTC’s efforts to return to profit include eliminating 80 jobs through voluntary departures for workers close to retirement age, the unit said in a separate statement. The division will subcontract some production and logistics operations and negotiate performance targets with employee representatives to prepare for introducing a new vehicle in 2017.

Labor’s View

“They’ve sold us, period,” Cyrille Luquet, head of the CFDT union at Peugeot Motocycles, said in a phone interview after a works council meeting to inform employees of the buyout details. “That’s what Tavares is here for: he’s been hired to cut all loss-making activities in two to three years and by then, he won’t be here anymore.”
PMTC’s current structure “compelled us to carry out this transaction,” Frederic Bart, a spokesman at the division, said by phone. “We are too small, and this deal will allow us to gain an international dimension and sell more products outside Europe.”
The companies are targeting completion of the deal in about three months, and Mahindra won’t reorganize Peugeot Motocycles for about two years, while the turnaround will focus on revenue growth, Goenka said. Mahindra’s spending on the project will total 28 million euros, including the equity purchase and 15 million euros in model development, he said.
Peugeot’s scooter business dates from the French company’s bicycle production, founded in 1886, and its first motorbike was produced in 1901. The unit, which today has 488 employees in France and about 300 workers at a Chinese joint venture, increased deliveries 8.2 percent to 79,000 vehicles in 2013.
The scooter unit shut an engine plant at the end of 2012, concentrating manufacturing in Mandeure in eastern France. Part of PMTC’s turnaround plan was the three-wheeled Metropolis, which went on sale last year. The original target of making 7,000 of the model a year has been scaled back to 4,000.