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Italian Investors Snap up a Stake in Floundering Aston Martin

Indians lose out on bid – but will rest of maker yet be sold.

by on Dec.07, 2012

Can you say, "Gratzi," Mr. Bond?

Troubled British sports car maker Aston Martin has found a critically needed new investor – though not the Indian manufacturer that many had anticipated winning out for a share of the brand best known for its long ties to movie spy James Bond.

The Italian private equity fund Investindustrial will take a minority 37.5% stake in Aston for $241 million, money that will help the majority stakeholder pump about $1 billion into new products and technology critically needed to help keep Aston Martin competitive.

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But a number of analysts and industry insiders question whether this is anything more than a temporary fix to tide things over while the Kuwaiti-based majority stakeholders seeks a way to dump the rest of its holdings.  It’s unclear whether Aston will continue talking to Indian auto and tractor maker Mahindra and Mahindra, which had been expected to win the bidding war.

Few have been surprised by Aston’s financial problems.  Indeed, the company has almost never been in the black since its founding, 99 years ago by Lionel Martin and Robert Bamford.  It went through a series of owners – and “saviors” – over the years, including Ford Motor Co., which bought a stake in the company in 1987 and took complete control in 1991.

In 2007, however, as it shifted focus to its core North American brands, Ford decided to sell off subsidiaries including Volvo, Jaguar, Land Rover and Aston, the latter purchased by a consortium including Aston’s racing chief David Richards – now its chairman – and Kuwaiti funds Investment Dar and Adeem Investment Co., Ford maintaining a tiny stake.

At $770 million, some analysts have suggests the group paid as much as twice what Aston should have gone for. The new deal suggests that Aston certainly has lost value as it would work out to only $643 million had the new stakeholder Investindustrial purchased the entire company.  But Aston claims the deal bumps up its net worth to 780 million pounds, a nearly 25% increase in its enterprise value.

As for the existing stakeholders, Aston confirmed their holdings “had been reduced accordingly” after the new investment.

The new investor recently sold off its stake in the motorcycle maker Ducati, which it had acquired in 2006, for 860 million Euros – at the time $1.1 billion. The purchaser was Volkswagen AG’s Audi subsidiary.

Despite its relatively diminutive size and elite products, Aston has been a surprisingly well-known brand thanks to its ongoing relationship with one of the film world’s longest-running film franchises. Despite being bumped aside in several films by competitors like BMW, an Aston has been the car of choice for super-spy James Bond – 007 dusting off a classic Aston Martin DB5 in the latest film, “Skyfall.”

A problem, however, is that Aston faces some significant challenges keeping competitive while also meeting increasingly stringent emissions and mileage standards.  As part of the Ford empire it could count on having that brand’s small cars offset its relatively low fuel economy.  On its own, Aston has to get there on its own – one attempted solution being a partnership with Toyota that gave European dealers access to the Aston Cygnet – a high-mileage microcar based on the Toyota iQ.

Aston has reportedly also been negotiating a deal with Daimler AG that could provide it some technical help for its more traditional supercars, such as the newest DB9.

Not everyone is impressed with the latest deal, Bernstein auto analyst Max Warburton telling Reuters, “It doesn’t look like a long-term solution.”

But it remains to be seen if Mahindra and Mahindra might seek to acquire some or all of the remaining Kuwaiti holdings. That firm has been hoping to expand globally and appeared to be trying to copy some of the strategy of its Indian rival, Tata Motors, which purchased Ford’s Jaguar and Land Rover operations several years ago.

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