The Munjals of the Hero group and Japan?s Honda Motors on Thursday announced the break-up of their 26-year old joint venture Hero Honda Motors. The company is the world?s largest two-wheeler manufacturer. The Hero group, which already holds 26%, will buy Honda?s 26% stake in the company. The relations had been strained since 2003 when Honda set up its 100% subsidiary in India and later started manufacturing motorcycles.
The details of the price at which the stake will be acquired and the structure and the timeline were not disclosed. FE was the first to report about the split between Hero and Honda in its edition dated August 3, 2010.
As per the announcement after the board meeting, Hero Honda has also signed a new licensing pact with Honda. Under the agreement, Hero Honda will continue to sell existing products while Honda will provide new models. All exports under the brand name will continue while the Hero group will have the freedom to set up own R&D and new product development capabilities, and also acquire new technology.
The new licensing agreement will supplement the existing one which is ending in 2014. The Hero Honda brand name will be changed over time.
?It will be business as usual at Hero Honda and there will be no change in ground operations in the immediate future,? Hero Honda director and CEO Pawan Munjal said.
Hero Honda will continue to produce and sell the existing models with continuous flow of new models, he added.
Though not spelt out today as earlier reported by FE, the price at which the Hero group will buy out Honda’s stake in JV is pegged at around Rs 950 crore. The contours and the structuring of the deal — which will involve setting up a special purpose vehicle ( SPV) by the Hero group in Singapore to buy stake from Honda and then divesting up to 60% stake in the SPV to a clutch of private equity players ? would be disclosed as nearer the date of actual transactions. Ultimately through this route Hero group would have around 35% stake in two-wheeler company.
As far as royalty payout is concerned, Munjal said that royalty on technology it buys from Honda to develop its current range of bikes like splendour and passion would stay at current levels. It is learnt from industry sources that royalty payment can also go down by a shade as Hero would pay royalty on current range of bikes which have grown too old in its stable. The two-wheeler major will also start exporting products across the globe and look for manufacturing opportunities. ?Hero Honda can go out and can make its presence felt globally,? Munjal said, adding that the company can now establish distribution networks across the globe. Besides, the two-wheeler major is free to set up its own R&D capabilities and acquire technology.