NEW DELHI: Hero Honda, one of the country's most recognizable brands, is set to don pure Indian colours with the Munjal family buying out its Japanese partner Honda in their joint venture, getting full control and say in India's biggest two-wheeler company.
The JV, formed 26 years ago, had been one of the few surviving and highly successful cross-border partnerships. But independent ambitious plans of the two partners —particularly the Indian promoters—as well as rising differences saw the companies calling it quits, but without any acrimony.
The deal which had been in the works for some months is set to change the contours of the Indian two-wheeler industry—the world's second-biggest after China—with an independent Honda (the world's biggest two-wheeler maker) all geared up to face competition and unleash new products through its fully-owned subsidiary HMSI. The Munjal family is looking to maintain its grip on the market, now without Honda, while working out major plans to grow overseas, something it was not permitted to do with Honda. So, the market dynamics are clearly going to change.
"Today is a new beginning, to broaden our horizons and to pursue our new dreams," Brijmohan Lall Munjal, the Munjal family patriarch and the chairman of Hero Honda, said after announcing plans to buy out Honda's 26% equity, which as per Thursday's closing price on the stock exchange is valued at about $1.9 billion. The Munjal family, which already held 26% equity in the company, will now emerge as the sole promoters.
Though the contours of the deal announced between the two companies were not disclosed by the company, it said that the Munjals will get technology support from Honda for existing models as well as new models and platforms through a new licensing arrangement. They will also be able to continue with the "Hero Honda" branding till 2014, which is a comforting factor for the Indian promoters as it gives them enough time to develop their independent products, while continuing with existing blockbuster products born out of the JV.
Both Munjals and Honda's Asia head Fumihiko Ike refused to divulge the contours of the deal, while brokerages and other market participants complained about the "lack of transparency" in the announcement. Earlier, there was speculation that the Munjals were buying the Honda's stake at a discount and looking to compensate them through higher royalty payouts. Pawan Munjal, Hero Honda's MD, denied that there were any such plans, and claimed that the royalty payout to Honda will be lower from January next year. "It is completely incorrect to say that royalty rates will go up," Munjal said, giving rise to speculation that the company may have paid a premium to the Japanese company for buying its stake.
Hero Honda paid 2.6% of its revenue as royalty to Honda in 2009-10, according to its annual report. "These things are not going to reduce the profit margin, Munjal said. "Once we develop our own capability, we are obviously not paying for the models that we were earlier importing."
The Munjals are now free to develop their own in-house R&D as they also look to partner other companies for sourcing technology and develop new models. Importantly, they will now be free to target newer geographies as export opportunity opens up. The two promoters maintained that interest of shareholders had been protected in the deal, but refused to share any more details saying they had a "confidentiality clause".
Read more: Finally, Honda parts ways with Munjals' Hero - The Times of India http://timesofindia.indiatimes.com/business/india-business/Finally-Honda-parts-ways-with-Munjals-Hero/articleshow/7114700.cms#ixzz18LFsArdF
The JV, formed 26 years ago, had been one of the few surviving and highly successful cross-border partnerships. But independent ambitious plans of the two partners —particularly the Indian promoters—as well as rising differences saw the companies calling it quits, but without any acrimony.
The deal which had been in the works for some months is set to change the contours of the Indian two-wheeler industry—the world's second-biggest after China—with an independent Honda (the world's biggest two-wheeler maker) all geared up to face competition and unleash new products through its fully-owned subsidiary HMSI. The Munjal family is looking to maintain its grip on the market, now without Honda, while working out major plans to grow overseas, something it was not permitted to do with Honda. So, the market dynamics are clearly going to change.
"Today is a new beginning, to broaden our horizons and to pursue our new dreams," Brijmohan Lall Munjal, the Munjal family patriarch and the chairman of Hero Honda, said after announcing plans to buy out Honda's 26% equity, which as per Thursday's closing price on the stock exchange is valued at about $1.9 billion. The Munjal family, which already held 26% equity in the company, will now emerge as the sole promoters.
Though the contours of the deal announced between the two companies were not disclosed by the company, it said that the Munjals will get technology support from Honda for existing models as well as new models and platforms through a new licensing arrangement. They will also be able to continue with the "Hero Honda" branding till 2014, which is a comforting factor for the Indian promoters as it gives them enough time to develop their independent products, while continuing with existing blockbuster products born out of the JV.
Both Munjals and Honda's Asia head Fumihiko Ike refused to divulge the contours of the deal, while brokerages and other market participants complained about the "lack of transparency" in the announcement. Earlier, there was speculation that the Munjals were buying the Honda's stake at a discount and looking to compensate them through higher royalty payouts. Pawan Munjal, Hero Honda's MD, denied that there were any such plans, and claimed that the royalty payout to Honda will be lower from January next year. "It is completely incorrect to say that royalty rates will go up," Munjal said, giving rise to speculation that the company may have paid a premium to the Japanese company for buying its stake.
Hero Honda paid 2.6% of its revenue as royalty to Honda in 2009-10, according to its annual report. "These things are not going to reduce the profit margin, Munjal said. "Once we develop our own capability, we are obviously not paying for the models that we were earlier importing."
The Munjals are now free to develop their own in-house R&D as they also look to partner other companies for sourcing technology and develop new models. Importantly, they will now be free to target newer geographies as export opportunity opens up. The two promoters maintained that interest of shareholders had been protected in the deal, but refused to share any more details saying they had a "confidentiality clause".
Read more: Finally, Honda parts ways with Munjals' Hero - The Times of India http://timesofindia.indiatimes.com/business/india-business/Finally-Honda-parts-ways-with-Munjals-Hero/articleshow/7114700.cms#ixzz18LFsArdF
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