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M&M's Aston Martin dream run over by UK private equity fund

Bloomberg/Mumbai/ Milan 07 Dec 12 | 12:37 AM

Private equity fund Investindustrial is near an agreement to buy an Aston Martin stake to shore up the finances of the British sports-car maker, two people familiar with the matter said.

Investindustrial, based in London, has trumped Indian automaker Mahindra & Mahindra to invest in the Gaydon, England-based automaker, said the people, who asked not to be identified discussing private negotiations. A final agreement has not yet been signed, the people said.

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The exact size of the stake transaction, which values the automaker at £750 million ($1.21 billion) including debt, has not yet been determined, one of the people said.

The deal would give Aston Martin a much-needed cash infusion to invest in automotive resources to compete with Volkswagen AG’s Bentley and Fiat SpA’s Ferrari. Investment Dar Co, led a group of investors that bought Aston Martin from Ford Motor Co in 2007 for £503 million.

“An industrial owner would have been preferable to a financial owner," said Ashvin Chotai, the managing director of Intelligence Automotive Asia in London. “Probably Mahindra could have provided them with a long-term commitment. That said, it was a trophy asset for Mahindra and would have required a lot of investment with very few synergies."

Aston Martin, Investindustrial, Mahindra and Investment Dar representatives declined to comment on the talks.

Ducati sale
The deal would return Investindustrial to high-end vehicle manufacturing after selling Italian motorcycle maker Ducati to VW’s Audi this year for ^860 million ($1.11 billion). While the original Mahindra bid was higher, Investindustrial’s offer includes plans to use technology and car parts from AMG, the Mercedes-Benz unit that makes sports cars, two people familiar with the talks said last week.

Investment Dar hasn’t had funds to spare for Aston Martin. The Kuwaiti company agreed in February last year to reorganise 1.37 billion dinars ($4.9 billion) of its own debt after missing payment on an Islamic bond in May 2009.

The restructuring is being implemented under Kuwait’s Financial Stability Law, enacted by the government in April 2009 to bolster financial institutions hurt by the credit crisis.

BMW investments
Aston Martin is the only global luxury-car brand that’s not part of a larger auto group and its independence could be a handicap with the auto industry under pressure to develop technologies to improve fuel efficiency. Bayerische Motoren Werke AG is investing more than 1 billion euros this year on making engines more efficient and developing electric vehicles. That sum exceeds Aston Martin’s 2011 revenue of 507 million pounds.

The bulk of Aston Martin’s lineup consists of two-door coupes like the DB9, Vanquish and Vantage. It also offers the Cygnet city car, which is based on Toyota Motor Corp. (7203)’s iQ. Aston Martin vehicles have been featured in 11 James Bond movies, including the vintage silver DB5 in the latest one, “Skyfall."

The British carmaker’s adjusted earnings before interest taxes, depreciation and amortization last year fell 18 percent to 76.2 million pounds, with deliveries steady at about 4,200 vehicles. Aston Martin said Nov. 28 it was seeking funds to pursue growth plans.

Moody’s Investors Services highlighted the British elite brand’s deteriorating finances when it put the company on review for a downgrade on Nov. 30. Aston Martin had negative free cash flow of 27 million pounds in the third quarter, reducing its liquidity to 24.8 million pounds as of Sept. 30, Moody’s said.

The carmaker’s sales tumbled 20 percent to 2,520 vehicles in the first nine months of 2012. Declining deliveries and weaker demand for cars with 12-cylinder engines led to an operating loss of 3.6 million pounds, Moody’s said, citing data released to bond investors on Nov. 28.

Moody’s rates Aston Martin’s debt with a non-investment grade B3 rating, which is defined as having “high credit risk." The ratings company said an agreement on a new investor would have a “material positive" effect on Aston Martin’s finances.

Large carmakers can help niche manufacturers stay competitive by spreading development costs across brands and models. Fiat owns Maserati and Alfa Romeo as well as Ferrari. VW completed the purchase of the Porsche car brand this year, adding the maker of the 911 alongside Audi, Bentley, Lamborghini and Bugatti.

VW uses the same platform to underpin the Lamborghini Gallardo and Audi’s R8, while the Bentley Continental Flying Spur and GT models share components with the VW Phaeton.

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