road_ripper

It's finally splitsville for Hero Honda, one of corporate India's oldest and most successful joint ventures , with the two founding partners—India's Munjal family and Japan's Honda Motor Corp—agreeing to part ways and terminate the 26-year-old relationship due to unresolved differences and ambitious independent plans.

Sources in the know said most of the terms of the deal, which will see Honda selling its 26% stake to the Munjal family, have been finalized and the matter will now be taken up by Hero Honda's board on Thursday. Top officials of Honda are arriving here to attend the board meeting , a source said.

The sources added that the Japanese auto major will exit the JV through a series of offmarket transactions by giving the Munjal family—that currently holds 26% stake in the company—an additional 26%. Honda, which also has an independent fully-owned twowheeler subsidiary—Honda Motorcycle and Scooter India (HMSI)—will exit Hero Honda at a discount and get over $1 billion for its stake. The discount will be between 30% and 50% to the current value of Honda's stake as per the price of the stock after the market closed on Wednesday.

The Munjal family plans to compensate Honda through high royalty payouts, which could double to nearly 6% of net sales. However, key financial institutions have objected to this move, saying that the deal could favour the Munjals but be detrimental to other shareholders.

Spokespersons for Hero Honda and the Munjal family refused to comment on the development .

Sources said as per the arrangement , it will be a two-leg deal. In the first part, the Munjal family, led by Brijmohan Lal Munjal group, will form an overseas-incorporated special purpose vehicle (SPV) to buy out Honda's entire stake, which will be backed by bridge loans. This SPV would eventually be thrown open for private equity participation and those in the fray include Warburg Pincus, Kohlberg Kravis & Roberts ( KKR), TPG, Bain Capital and Carlyle.

"The PEs will take between 50-60 % stake in this entity , giving them just under 15% stake in the main company Hero Honda, which would soon sport a new name," the sources said.

Hero Honda, credited with putting the Indian middleclass on wheels, defied its humble beginnings to quickly emerge as the world's biggest two-wheeler maker, also ending the stronghold of Bajaj scooters in the country.

Tech, spares major irritants


Hero Honda's lowcost and highly-fuel efficient bikes (remember the classic 'Fill it, Shut it, Forget it' campaign ) quickly emerged as the most-popular and convenient mode of transport, catapulting the company into the global league of two-wheeler biggies.

However, it was the rising differences between the two partners that gradually emerged as an irritant. Differences had been brewing for the last many years over a variety of issues, ranging from Honda's reluctance to fully and freely share technology with Hero (despite a 10-year technology tie-up that expires in 2014) as well as Indian partner's uneasiness over high royalty payouts to the Japanese company. Another major irritant for Honda was the refusal of Hero Honda (mainly managed by the Munjal family) to merge the company's spare parts business with Honda's new fully-owned subsidiary Honda Motors India (HMI).

Sources said a large number of people from the Munjal clan are also suppliers to Hero Honda, giving undue advantage and benefit to the Indian promoter. But to the discomfiture of the Munjals, Honda wanted a more competitive approach to component procurement , that may have seen the end of many of these suppliers.

"The differences became too big to allow a harmonious existence," the sources said. Simultaneously , Honda's ambitious plans for its two-wheeler subsidiary HMSI also gave the confidence to the company to go it alone. HMSI has singlehandedly revived the scooter market in India and has been gradually gaining ground in motorcycles as well. A bullish Honda wanted a solo say in the running of its business, and HMSI's success gave it the confidence to go for a split.

HMSI has seen sales growing 42% in April-November this fiscal and it is setting up a second plant-—with a peak capacity of 1.2 million units—to boost operations. Its plant at Manesar has a capacity of 1.6 million units. Honda is expected to launch a slew of new models, including lowpriced bikes to challenge Hero Honda and other competitors . The exit of Honda has, however, beaten the Hero Honda scrip as investors feel that it may not have the wherewithal to independently provide technology support.



Read more: Hero, Honda split terms finalized - The Times of India Hero, Honda split terms finalized - The Times of India

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News Approved

Its a bit old news. What actually happened today is still not out.

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chiragwarm

This had to happen with HERO! But I wish the new brand name is as Heroistic as it is now Positive news..

RoadZilla

Even I am waiting for the outcome of today's board meeting of Hero Honda

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manan3230

Deal with Honda in favour of Hero Honda: Hero Grp Chairman

Hero Group Chairman BM Munjal says that the JV termination was done keeping in mind interests of shareholders.

Board approves new MoU between Hero Honda & Honda: Pawan Munjal

Hero Honda MD Pawan Munjal says this is the most important announcement over the last 25 years.

Incorrect that royalty will go to 8%: Pawan Munjal

Hero Honda MD Pawan Munjal says royalty will remain in-line or even lower.

Deal is in favor of all stakeholders: Pawan Munjal

Hero Honda MD Pawan Munjal says that shareholder interest will not be compromised.

Hero to continue producing & selling all existing bike models

Post the deal, Hero Honda says it will be free to develop new models, R&D capabilities.

Free to appoint distributors across the world: Hero Honda

Hero Honda says it will make its presence felt in global markets.

Free to acquire technology within & outside India: Hero Honda

Hero Honda adds that the deal gives freedom to explore large export markets.

Company will be renamed in due course: Sunil Munjal

Hero Group director says two independent teams will set up to negotiate deal. However, will not be share details of deal, he adds.

Hero Honda to buy Honda's 26% stake in phased manner

Hero Honda adds that the royalty rate will start declining from January 2011.

As of now, no segment-wise non-compete between Hero & Honda: HHML

Hero Honda says that even now, Hero Honda & Honda Motorcycle & Scooters India (HMSI) compete in same segments.

Honda to exit JV some time next year: Hero Honda

Hero Honda says that it expects most of its models to become royalty-free soon.

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cyclone2k

This seems to me like a great news! The war for classy stuff is finally on! CBR250R is the first ray of change!

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HONDA fans, unite here!

aargee

Its good to see Hero & Honda parting ways. The competitive environment should bring up good products & hopefully Hero group will change their strategy of calling a graphic design as new model going forward

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worrisomebear

Honda will provide technical help to hero for 3 more NEW products till 2014.
hero group would continue to use Hero honda brand would continue till 2014

payeng

For how long can Hero use the Honda brand name on its bikes? Am curious to know that.

I don't think the FINAL and CONFIRMED details are out yet. Waiting for the final details to be out.

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anmol_1990

so after 2014 karizma will be known as "Hero Karizma"

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