Indian bus and truck maker Ashok Leyland is to take a 26 per cent stake worth about £4,8million in Optare, as a part of long-term strategic co-operation between the two companies. The deal will help Ashok Leyland accelerate technology and new product development, and attack new markets.
Optare expects to improve its competitiveness in the UK and export markets through access to Ashok Leyland’s lower-cost supply chain, co-operation in new product development and improved management of its working capital. Ashok Leyland will nominate two members to the board of Optare.
The agreement, together with the issue of additional share warrants, will provide Optare with around £5.5million in cash. Optare will use these funds to support investment in its global bus development programme, to further reduce both the whole life costs of its products, and to reduce term debt by an additional £2million. Following completion of the agreed sale of Optare’s Rotherham site and this investment, the company’s term debt will reduce to less than £1.6million from £7.5million just 12 months ago.
Ashok Leyland is the market leader in buses in India and has been developing its bus business with purpose built bus-plants in Alwar in India and Ras Al Khaimah in the United Arab Emirates, and a new range of city buses and inter-city coaches. With the agreement, Ashok Leyland will have access to Optare’s technology, including a modern range of mid-size and full-size city buses which will appeal to global markets.
Both Ashok Leyland and Optare have their roots in the former Leyland truck and bus business. Ashok Leyland is part of the Hinduja Group, which has wide-ranging business interests in sectors including automotive, information technology, property, energy and banking. Ashok Leyland is the flagship of the Hinduja Group and in 2009-10 its turnover was around £1.0billion. In 2009 Optare had a turnover of almost £80 million.
R Seshasayee, managing director of Ashok Leyland and executive vice chairman of Hinduja Automotive, says: “This strategic alliance is a critical part of our global bus programme, which is under development. In Optare, we have found a European manufacturing partner who shares our vision for state-of-art buses at affordable prices. Together, we will be able to offer future-ready products of high quality and design that are competitively priced to customers in almost all regions.”
“This new venture will deliver direct benefits to UK bus customers while propelling Optare on to the global stage,” says John Fickling, Optare’s non-executive chairman. “We will benefit from the tremendous opportunities offered by Ashok Leyland not only as an industry giant but as a leader in advanced technology.”
Jim Sumner, Optare’s chief executive officer, adds: “For the past year, we have focused on turning around our business. However, we have made no secret of our wish to find a long term strategic partner. Now with Ashok Leyland, I am confident of creating an organisation which will become a significant force in the global industry for many years to come.”
The agreement between Ashok Leyland and Optare will be the subject of a general meeting of Optare’s shareholders to be held in Leeds on 16 August.
