Hero to buy out Honda’s stake in 26-year-old JV

"This is the most important announcement I have made in the past 25 years," said Hero Honda managing director and CEO Pawan Munjal on Thursday as he formally announced the Hero Group's decision to break its joint venture with Honda. Bringing down the curtains on a 26-year-old partnership, Munjal said his Group would buy the entire 26 per cent stake held by the Japanese automaker in a phased manner amongst two or more qualified promoters at a discount. While, neither party disclosed the worth of the deal, based on Hero Honda stock's closing price on Wednesday, Honda's stake is worth Rs 8,717.54 crore. Munjal, however, did say that the Group was "hoping to fund this (stake buyout) through debt initially, which will be paid back over a period of time". A senior Hero Group official said the deal has been transacted at a discount from the current market prices but the exact value could not be ascertained.The Hero Group board, Munjal said, has approved a memorandum of understanding (MoU) between the two parties for a new licencing agreement, and that a definitive pact would be signed in a few weeks' time. Hero Honda will continue to produce and sell existing models under its belt, besides having a "continuous flow of new models" Munjal said. Under the new pact, the Hero Group will have the freedom to go global and export across segments to new international markets, something the existing joint venture pact with Honda was not allowing it to do. The new licencing agreement also allows the Hero Group to expand on R&D and product development, besides looking at manufacturing facilities abroad. The company will be free to acquire technology from any foreign firm. Honda will also grant new licences for new products which will be produced and sold under a new brand name. The two-wheeler maker will have to gradually change its name from Hero Honda after the final pullout of Honda.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." Asked by when the whole deal is likely to be completed, Munjal said it is expected to be over by "sometime next year". "Royalty will remain in line or even lower... it is incorrect that royalty will go up to 8 per cent," Munjal said, dismissing earlier media reports. The royalty paid in 2009-10 stood at 2.3 per cent to 3 per cent of sales on average. In anticipation of the announcement that came after the market hours, Hero Honda shares jumped 3.57 per cent and closed at Rs 1,679.10 on the Bombay Stock Exchange.

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