Deal between Johnson Controls and Amara Raja comes to an end

Deal between Johnson Controls and Amara Raja comes to an end
Highlights

Brookfield Asset management purchased the company’s power solution business, where it supplied batteries to car maker and light commercial vehicles, for $13.2 billion.

A classic case of the challenger overturning an established industry leader-board is Amara Raja. The company changed the dynamics of India's automotive battery industry ruled by Exide, earning the trust of a growing legion of customers and investors in the bargain, all this only in just two decades of its existence.

On Wednesday, the stock plunged 10 per cent in early trade, it's most hard hitting fall since the global financial collapse, as a resilient technology deal between Johnson Controls and Amara Raja came to an end. It brought in its wake more inquiries about the capital structure and technology resources at a company that resembled Exide in the market-cap sweepstakes.

US auto parts maker Johnson Controls has been supplying critical technologies since 1997 and holds 26 per cent in Amara Raja Batteries. Johnson Controls will sell 2 per cent of its stake to the Indian promoter of Amara Raja, the Gala family, as an inter-promoter transfer, as per the new arrangement. The Gala family holds 26 per cent in Amara Raja at the end of December 2018, according to BSE.

There could be two possible ways for Johnson Controls to exit as the investors are only afraid about the company's next move on the 24 per cent residual equity. One way could be to sell its entire stake in the market through multiple block deals, which will result up to the incremental supply pressure will remain an overhang on the stock until Johnson Controls exits entirely. The other way could be that Johnson Controls has to find a deliberate or financial consumer to sell its stake.

Back in the US, Brookfield Asset management purchased the company's power solution business, where it supplied batteries to car maker and light commercial vehicles, for $13.2 billion. Nevertheless, there is no transparency whether the Indian unit stake will also be sold to Brookfield at some stage.

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