Mahindra's discount deal shows Pininfarina's limited options

By Pamela Barbaglia and Stephen Jewkes LONDON/MILAN (Reuters) - Indian automaker Mahindra Group's deal to take over troubled Italian car designer Pininfarina was well below recent market levels and showed how the brand synonymous with Italian style has run out of options. On Tuesday, Mahindra & Mahindra , along with its IT outsourcing arm Tech Mahindra , said it would buy Turin-based Pininfarina for 1.1 euros per share. That compares with Friday's 4.20 euro close while as recently as April the stock had been trading as high as 6.29 euros. The share price is down around 95 percent since the start of 2007. Still, it's an expensive deal for Mahindra, a source close to the Indian company said. Mahindra, which has interests from tractors to IT outsourcing, said besides a cash outlay of around 33 million euros it would pump in 20 million euros of fresh capital, provide a guarantee to creditors of 114.5 million euros and take on the debt of the loss-making car designer. "They're paying Pininfarina's lenders, paying shareholders and injecting money into the company, all while keeping the brand and jobs in Italy," a source close to Mahindra said. The source described the deal as a rescue operation and recalled other distressed deals by international companies including the sale of French battery-powered carmaker Mia Electric to Focus Asia in 2013. "Pininfarina may be an iconographic name but it's had problems of late raising money with the banks and has been looking for a buyer for quite some time," an analyst at a London brokerage said, asking not to be named. Mahindra first approached Pininfarina at the beginning of this year, but has links with its target going back to 2013, when the Indian company hired Hubert Tassin, a former Pininfarina designer. Pininfarina, famous for designing Ferraris such as the Testarossa and which has also designed cars for Maserati and Rolls-Royce, has been loss-making for close on 10 years partly because carmakers have brought design in-house. Its debt stood at 52.7 million euros at end-June. CLOSING TAPS According to the source close to Mahindra, Friday's closing price was not a reflection of the company's real value. "Pininfarina shareholders are well aware there's no value in the business: when the Italian banks close the taps and your clients walk away you're no longer in business," the source said. Under the deal, Pininfarina will remain an independent company listed on the Milan stock market. Paolo Pininfarina, a grandson of the company founder, will stay on as chairman. "You have to bear in mind that under this deal the company will be recapitalised with better growth opportunities," Pininfarina CEO Silvio Angori said on Tuesday. For Mahindra, the high-end design credentials of Pininfarina will boost its design capabilities and allow it to chase a bigger market pie. In a note, Deutsche Bank estimated an enterprise value/sales multiple for Pininfarina of 1.5 times which, it said, appeared to be high. "(But) we note that M&M (Mahindra) is acquiring the company to enhance its future product launch pipeline," it said. Pininfarina is not the first Italian iconic brand to be snapped up by emerging market players eager to grow their footprints. Luxury yacht maker Ferretti was bought in 2012 by China's Weichai Group after it became weighed down by debt. (Reporting by Stephen Jewkes; editing by Susan Thomas)