The BM Munjal-led Hero Group on Tuesday said it will pay Rs 3,841.83 crore (Rs 38.41 billion) for Honda's 26 per cent stake in their joint venture Hero Honda.
The group also said it will raise fund from private equity firms, including Bain Capital and Lathe Investment, estimated to be around Rs 4,500 crore (Rs 45 billion) to finance its buyout by selling stake in Hero Investments Private Limited (HIPL).
"Hero Investments Private Limited (HIPL), an investment company of the Hero Group stated that it is acquiring Honda's 26 per cent stake in HHML at Rs 739.97 per share," the group said in a statement.
Honda currently holds 51,91,8750 shares in Hero Honda and at the said share prices, the total value of the buyout amounts to Rs 3,841.83 crore (Rs 38.41 billion).
Hero Honda scrips closed the day at Rs 1,518.15 per share on the BSE, down 0.77 per cent from the previous close.
The Hero group further said it has also signed definitive agreements with PE firms BC India Private Investors II, an affiliate of Bain Capital LLC, and Lathe Investment Private Limited, a wholly owned subsidiary of Government of Singapore Investment Corporation (Ventures) Pvt. Ltd.
HIPL will sell stakes to the PE firms to raise funds for acquiring Honda's stake in Hero Honda, it added.
While the group did not disclose the amount to be raised from the PE firms, HIPL had sought government approval to bring in foreign investment of Rs 4,500 crore. HIPL is one of the main shareholders of the country's largest two-wheeler maker Hero Honda.
It holds 17.33 per cent stake in the company as on December 31, 2010. The Foreign Investment Promotion Board (FIPB) had recommended the proposal to the Cabinet Committee for approval as it involves foreign investment exceeding Rs 1,200 crore (Rs 12 billion).
"Further details will be shared after receiving the necessary approval from CCEA. The funds received as investment made in the holding company by the PE firms will be used to retire a significant portion of the debt that has been raised by HIPL recently for financing the acquisition," the Hero group said.
According to a sector analyst, the share price for the buyout is in line with indications given before and for the PE firms this is a long term investment.
"The Hero Group has long term plans both in the domestic and international markets but will have to face stiff competition from Honda which is becoming aggressive itself in the economy segment and Bajaj is already a tough competitor," the analyst said.
Last year the Hero Group and Honda agreed to part ways from their joint venture after 26 successful years.
There have been discord brewing up between the partners ever since the Japanese firm decided to enter the Indian two-wheeler market through its wholly- owned subsidiary Honda Motorcycle & Scooter India (HMSI).
Moreover, the Hero Group was also unhappy with restrictions over exports as Hero Honda was not allowed to explore overseas markets.
Hero Honda manufactures motorcycles such as Splendor, Passion, Karizma ZMR, Hunk, CBZ Xtreme and scooter Pleasure.