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Hero Honda splits; Hero to buy out Honda's 26% stake

Last updated on: December 16, 2010 17:20 IST

Hero Honda splits; Hero to buy out Honda's 26% stake

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Breaking its 26-year-old joint venture -- Hero Honda, Munjals-promoted Hero Group on Thursday said it will buy the entire 26 per cent stake of its Japanese partner Honda in the company for an undisclosed amount.

The Hero Group and Honda hold 26 per cent each in Hero Honda that started operations in 1984 to become the world's largest two-wheeler maker today.

As part of a new licensing agreement with Honda, the Hero Group will buy Honda's 26 per cent stake in Hero Honda.

"This is the most important announcement I have made in last 25 years. The board has approved an MoU between Hero Honda and Honda," Hero Honda managing director and CEO Pawan Munjal told reporters.

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Hero Honda will continue to produce and sell the existing models with "continuous flow of new models," he added. However, all future products will be rolled out under the new licensing agreement between Hero Group and Honda.

Commenting on the deal, Honda managing director and COO regional operations (Asia and Oceania) Fumihiko Ike said: "In order to assure service to the customers, Honda will grant the necessary license to enable continued production and sales of current products as well as license for new products."

With the promoters parting ways, the Hero Honda brand name will be changed over time, the company said.

Munjal said the two companies will sign a definitive agreement within the next few weeks.

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He, however, declined to share the deal value saying that the amount will be funded through debt.

"Royalty to remain in line or even lower... it is incorrect that royalty will go up to 8 per cent," Munjal said.

The royalty paid in 2009-10 on an average stood at 2.3 per cent to 3 per cent of sales.

The two-wheeler major will also start exporting products across the globe and look for manufacturing opportunities.

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Image: Brijmohan Lall (L), Chairman of India's top motorcycle maker, Hero Honda Motors Ltd.
Photographs: Reuters
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"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.

"It will be business as usual for the time being at Hero Honda and there will be no change in ground operations in the immediate future. The two companies have also put in place processes and means of support to ensure a gradual and smooth transition," the domestic auto maker said.

Hero Honda had sold 4.6 million two-wheelers in the last fiscal, grabbing 48 per cent of the Indian two-wheelers market, which is the second biggest in the world after China.

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In 2004, the Hero Group and Honda had extended their agreement for 10 years.

Under it, the Japanese partner would continue to provide technology to the joint venture. It was to come up for renewal in 2014.

Hero Honda shares jumped 3.57 per cent and closed at Rs 1,679.10 apiece on Thursday.


Image: Brijmohan Lall (L), Chairman of India's top motorcycle maker, Hero Honda Motors Ltd. and Managing Director Pawan Kant Munjal
Photographs: Reuters
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