In a joint statement, they said that they have decided to end their three-year old partnership in the Indian defence sector with M&M set to acquire 26 per cent stakes of its partner in the joint venture company DLSI.
In DLSI, Mahindra Defence Systems -- a part of the Mahindra and Mahindra group -- has 74 per cent stake while the global defence major had the remaining 26 per cent.
The Joint Venture company had plans of supplying artillery howitzers and anti-mine vehicles to the Indian armed forces.
"Since the establishment in 2009 of the Joint Venture, DLSI, there has been significant evolution in the Indian Land Systems market.
"Developments in both the industry environment and in customer procurement frameworks and acquisition strategies have led the shareholders to conduct a strategic review of the DLSI business," BAE Systems said in the statement.
"Following that review, it has been jointly agreed that Mahindra & Mahindra will acquire BAE Systems' 26 per cent shareholding in the entity.
"This decision is a reflection of the shareholders' belief that they can best meet emerging customer requirements and address the opportunities in this dynamic market with a flexible, tailored approach that was not easily facilitated by the structure of the existing Joint Venture entity," it said.
BAE said the decision will enable both companies to consider each opportunity on a case by case basis, including continuing to explore opportunities for co-operating on specific defence projects.
Commenting on the development, Brigadier (Retd) Khutub Hai, Chairman and Managing Director, Mahindra Defence Systems, said" "In keeping with the Indian defence acquisition scenario and current market considerations, the managements of Mahindra & Mahindra and BAE Systems have decided that Mahindra's 100 per cent subsidiary Mahindra Defence Systems will acquire BAE Systems' 26 per cent shareholding in the Defence Land Systems India (DLSI) joint venture."
"This is a strategic decision and will enable both the companies to approach opportunities individually and to offer customised solutions to meet the needs of the Indian defence land systems domain," he said.
Dean McCumiskey, Managing Director and Chief Executive, India, BAE Systems, said, "Building domestic capabilities in partnership with Indian companies will remain a cornerstone of our strategy in India.
"We look forward to opportunities to collaborate with Mahindra and others to enhance the role of the private sector in the defence industry."
As per India's FDI policy, foreign vendors can invest only 26 per cent in the Indian defence sector to develop military hardware indigenously.