When Maruti almost gobbled up Hyundai India, its arch-rival of over two decades

CHENNAI: Maruti Suzuki and Hyundai Motor India (HMI) are the No. 1 and No. 2 passenger vehicle companies in India, and have been arch rivals for more than two decades. But imagine what the Indian car market would have looked like if Maruti took over Hyundai India... Sounds unbelievable? But that's exactly what nearly happened back in 1999 when HMI's parent was battling the worst of the Asian crisis.

In his new book 'Santro: The Car That Built A Company', former HMI president B V R Subbu gives details of how Hyundai India almost became a wholly owned subsidiary of Maruti.

The backdrop of this near-takeover was the late-90s when HMI's parent Hyundai Motor Company (HMC) was tackling the Asian currency crisis. At that point, "HMC had actually started looking at the possibility of a significant dilution of its equity holding in the Indian entity, even going to the extent of making specific applications to the Foreign Investment Promotion Board for offloading of 14.2% of the Rs 812-crore equity." The book says the investment bankers handling the deal roped in Unit Trust of India (UTI) and American Insurance Group (AIG).

Though interested, however, the deal fell through on the issue of employee stock options and possible IPO of the Indian arm as well as the bigger issue of Korean banks developing cold feet. "The creditor banks of HMC worried about a debt overhang as HMC worked to offload a part of the HMI shares collateralled with them," said Subbu.

That's when, in mid-1999, Maruti came into the picture. "A global investment bank rumoured to be Bank of America" approached both GM and Maruti Udyog (MUL — it was still a Suzuki-government of India JV then). "SMC," says the book, "probably did not then have the liquidity for the acquisition and in any case would have had to contend with the government of India ...(in accordance with the terms of Press Note 1) if they wanted another plant in India." The solution was to route the acquisition through MUL.

The government approval thought out by the Suzuki adviser handling the deal was done by convincing the minister concerned of the likelihood of losing 1,600 jobs in HMI's Chennai plant, should its parent's financial woes result in closing the Indian arm down, says the book. Despite the careful planning though, the deal came unstuck.

"SMC's adviser apparently did not budge beyond Rs 30 per share offering, however, to put the MUL cheque on the table within a week of concluding the transaction," says the book. That price was a little too low for the Koreans. "The Korean bankers, it was then rumoured, might have settled for a number 50% higher than what Suzuki's adviser informally offered, but when they realised their asking price was unachievable, they decided not to monetise their security," says the book.As it turns out, HMI rode out the crisis as the sales of its flagship Santro model picked up speed, particularly with the launch of a Euro 2 variant even before the Euro 1 mandate. In August 1999, HMI made a cash profit and has since never looked back.