The Hindu A huge gear displayed by Shanthi Gears at the 'INTEC 2012', fair in January 2012.
Chennai-based Murugappa Group, is all set to acquire a substantial stake in Coimbatore-based Shanthi Gears Ltd.

Shanthi Gears, the listed Coimbatore-based manufacturer of industrial gears, will soon become part of the Murugappa Group. The Group’s flagship company, Tube Investments of India (TII) will be acquiring the 44.12 per cent stake held by the promoter, P. Subramanian, and associated entities, Shanthi General Finance Pvt. Ltd. and Shanthi Social Services, in Shanthi Gears in a Rs 292 crore deal.

The shares of face value of Re. 1 each will be acquired at Rs.81 per share according to a notification to the Bombay Stock Exchange. This is a premium of 28 per cent to the current market price of Rs 63.15 a share.

Shanthi Gears, a 44-year old company, is into manufacture of gears, gear boxes, geared motors and gear assemblies, and has six units in Coimbatore, including a foundry. The turnover of the company in 2011-12 was Rs.178 crore and the net profit after taxation Rs. 28 crore. Post-acquisition of the promoters’ stake, TII will be making an open offer to public shareholders for the minimum 26 per cent as laid down by SEBI regulations. The total deal size will go up to Rs.464 crore assuming full response to the open offer.

Debt-free firm

According to a company official, the acquisition process is likely to be completed in 2-3 months. Shanthi Gears is a debt-free company with Rs.65-70 crore cash balance. The promoter has decided to sell his stake as he wants to focus more on social service activities. Projects such as medical centres and pharmacies are now operated through Shanthi Social Services, sources say.

L. Ramkumar, Managing Director, Tube Investments, said in a press release that addition of Shanthi’s product portfolio would enhance TII’s ability to service other industry segments and reduce its reliance on the auto sector, at the same time growing the company’s presence in the value-added businesses.

Shares of Shanthi Gears rose 4.99 per cent to Rs.63.15 while TII’s stock closed at 154.75, up 6.21 per cent on Friday.