Sources familiar with the development said M&M will only acquire the assets and not the debt. According to the Pune-based company's 2006-07 balance sheet, Kinetic had a total debt of Rs 78.49 crore (Rs 784.9 million) while the value of its assets stood at Rs 186.03 crore (Rs 1.86 billion). After deducting the depreciation cost, the value of the assets comes to Rs 106.89 crore (Rs 1.06 billion).

The companies will announce the deal in two weeks.

Kinetic has been making losses for the last four years. It reported a net loss of Rs 74.86 crore (Rs 748.6 million) in the financial year ended March 2008. During the year, the company also recorded a 53.5 per cent decline in sales at Rs 118.29 crore (Rs 1.18 million).

"No share purchase is involved, it is a business transfer deal," said a person familiar with the development.  Mape Advisory Group, which is advising M&M on the deal, declined to comment.

The Kinetic stock closed 2.73 per cent down at Rs 16.05 on the Bombay Stock Exchange today. The market capitalisation of the company at this price is Rs 33.82 crore (Rs 338.2 million). The M&M stock closed at Rs 493.65 on Wednesday, down 5.42 per cent.

While the deal will help the loss-making Kinetic Motor to clear its debts, it meets M&M's aspirations to get into the two-wheeler business.

M&M recently signed an agreement with an Italian two-wheeler design house and had set up a team to enter the country's 7.2-million strong two-wheeler market.

The team will look at all aspects of the two-wheeler business � from research and development to sales & marketing. Operations of the two-wheeler business will function independently in line with the company's venture with French carmaker Renault and the truck venture with the International Truck Engine Corporation (ITEC) of the US.