Analysts were positive on the merger as it implies better margins for Maruti, whose earnings per share might be upgraded by 3-4 per cent post the deal.
Suzuki Power reported a higher ebitda of 12.1 per cent against Maruti's 7.2 per cent in FY12. It reported a net profit of Rs 115 crore on sales of Rs 4,500 crore in FY12.
“With the merger, Maruti will be able to bring its entire diesel engine capacity under a single management control. The proposed merger also promises benefits for the combined entity through synergies in areas like finance, capital structuring and administration and consequent reduction of transaction costs,” the company said in a statement.
The merger, proposed through a share swap, does not entail a cash outflow from Maruti. The swap ratio has been fixed at 1:70. SMC will receive one share of Maruti (of Rs 5 each) for every 70 shares (of Rs 10 each) it holds in Suzuki Powertrain.
Maruti proposes to make a fresh issue of 1.32 crore shares to SMC in lieu of SMC’s 70 per cent holding in Suzuki Powertrain. Consequent to the merger, SMC’s holding in MSIL will go up from 54.2 per cent to 56.2 per cent.
The merger is expected to be completed by December 2012.
"There are no plans to reduce jobs, following this merger," the company said.
Shares in Maruti traded with 1 per cent gains at Rs 1,120 on the BSE. In contrast, the BSE auto index was up 0.15 per cent.