Motherson Proposes Acquisition of Japan’s Marelli

Indian auto parts supplier Motherson Group is preparing to make a strategic move by submitting a formal offer to acquire Marelli Holdings, a Japan-based automotive component manufacturer. Marelli is currently owned by the US private equity firm KKR & Co. This acquisition plan involves Motherson purchasing Marelli’s outstanding debt at a significant discount, specifically at 20 cents on the dollar. Simultaneously, KKR is expected to write off its entire equity stake in the company. This information was disclosed by a banking source familiar with the deal.

Marelli’s financial restructuring relies heavily on the approval and cooperation of its lenders, who currently hold the majority of its $4.2 billion debt. A consortium of Japanese banks, spearheaded by Mizuho Bank, is reportedly in favor of the acquisition plan. These lenders will need to agree to a debt haircut — essentially a reduction in the amount they are owed — for the deal to proceed. Such debt restructuring is critical to facilitate the transfer of ownership and to support the company’s financial revival.

The recent performance of Marelli has shown signs of improvement. The company has managed to turn its operating income positive and expects a higher profit margin in 2024 compared to 2023. This turnaround reflects the effectiveness of ongoing restructuring efforts and operational improvements. Notably, KKR had previously written off a $2 billion investment in Marelli back in 2022, signaling significant financial distress at that time. However, to support the company’s recovery, KKR injected an additional $650 million in new capital. This infusion of funds was aimed at stabilizing Marelli’s operations and facilitating its turnaround.

If Motherson’s acquisition bid succeeds, it would represent a major leap forward for the Indian conglomerate, elevating its position in the global automotive parts supply industry. Marelli is a crucial supplier to major global automakers, including Nissan Motor Co. and Stellantis, which underscores the strategic value of this acquisition. Owning Marelli would not only expand Motherson’s product portfolio but also strengthen its foothold in key international markets.

This potential acquisition comes at a time when the global automotive industry is facing increasing uncertainties. Fitch Ratings recently revised its outlook for the auto sector from “neutral” to “deteriorating.” This downgrade is largely due to escalating tariff risks amid ongoing trade tensions and declining vehicle volumes in major markets. These challenges create a complex backdrop for any major business transaction in the automotive supply chain.

Despite these hurdles, the proposed deal reflects confidence in Marelli’s long-term prospects and Motherson’s ambition to grow through strategic acquisitions. The restructuring plan — combining debt purchase, equity write-off, and capital injection — aims to create a financially viable and operationally strong company poised for future growth.

In summary, Motherson Group’s planned acquisition of Marelli Holdings involves purchasing a large portion of Marelli’s debt at a discount, with lender approval necessary for debt reduction. Marelli’s improving financials and strategic importance to global automakers add significant value to the deal. Meanwhile, the transaction occurs amid an uncertain global auto market, with Fitch Ratings flagging growing risks. A successful acquisition would bolster Motherson’s global standing and mark a significant milestone in the company’s expansion strategy.