Unite union calls for new capital to be invested in Aston Martin’s business

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Aston Martin employs around 1,800 staff including contract and agency workers, mostly in the UK, so it’s understandable that their trade union, Unite, is seeking confirmation that any capital received from the sale of equity goes into developing new products, rather than the pockets of current owners Investment Dar of Kuwait.

This comes on the back of news this week that Aston Martin are in “..advanced talks with potential investors over an injection of capital into the business.” One of those investors is understood to be India’s Mahindra and Mahindra, the $15bn tractor and SUV producer, while the other is Italian private equity fund, Investindustrial, who recently sold Italian motorcycle maker Ducati to Audi for $1.1bn.

Investindustrial has a technology and parts-sharing alliance with Mercedes-Benz and is confident that its proposal is technically supperior to that of other bidders. Although its offer price is thought to be lower than Mahindra, the deal could provide Aston Martin with a supply of engines once its current agreement with Ford ends in 2013.

One further name which has entered the frame is Toyota – although we have no further details at this stage on whether they have actually made an offer.

Investment Dar (TID), which bought a 50% stake in Aston Martin in 2007 as part of a consortium, is thought to be looking to exit after the company’s third-quarter revenues showed a 20 per cent decline from the same time a year ago. The consortium consisted of TID’s strategic ally, Efad Group, British company Prodrive (led by Dave Richards) and the American company, Sinders Racing.

Aston Martin has fallen behind its peers in the race to develop new technology and is delivering less than 2% EBIT performance (earnings before interest and tax) compared to rival Bentley’s 7.5%. This has raised concerns over its ability to service the interest payments on its £304m corporate bond, the next of which is due in January 2013.

Unite, the largest trade union in the UK, said on Friday, “We would like any financial investment to be used for the benefit of the UK business to secure both the long-term future of Aston Martin and for our members employed there. Aston Martin should be directed into developing new models and securing the workforce’s future.”

Unite regional officer, Tim Parker said: “We are seeking detailed information from Aston Martin’s management and the firm’s owners, Investment Dar of Kuwait about the prospect of (this) new investment money.”

It’s understood that Mahindra and Mahindra is currently the front-runner to acquire a minority stake in Aston Martin, after outbidding Investindustrial in the first round. The deal shape is thought to be £250m for a 40 per cent equity stake in the business, with 50 per cent of the voting rights. This values Aston Martin at around £750m (US$1.2m) or a multiple of around 10 times its (EBITDA) earnings.

The reason for the unequal split (in ownership and voting control) is thought to be due to a change-of-control covenant on the high-yield bond raised last year, the covenant is triggered when there is a significant change in the company’s equity ownership and may explain why Investment Dar has continued to deny there is any truth in the deal (see above statement).

The negotiation with bidders has focused on carefully constructing a deal so that at around £50m of the capital is immediately invested in the business, rather than into shareholder’s funds – this investment capital would then convert back into equity at a later date, perhaps at the same time as the winning bidder increases their stake in a second round of investment.

Investment Dar has struggled under a US$3.6bn debt burden and was ignominiously delisted from the Kuwaiti Stock Exchange in February this year. In 2010 it sought protective administration under Kuwait’s Financial Stability Law after failing to pay a US$100m Islamic bond. Following the restructuring of its assets it has now begun paying back its investors, although this has been undermined by protracted legal negotiations and several resignations from its creditors’ co-ordinating committee.

The Kuwaiti investment house will be seeking to obtain the highest return on its stake in Aston Martin, although ironically the highest bidder at this stage in the company’s development might not prove to be the best for it in the long-term.

We expect to hear further news on the deal in the next 48 hours.