The deal is valued at $25 million and will see both firms partner for selling and marketing
Hero MotoCorp will acquire 49.2 per cent equity in U.S.-based motorcycle company Erik Buell Racing (EBR) for $25 million (about Rs. 148 crore).
The company had signed a technology sharing deal with EBR last year.
“This is the first time that Hero MotoCorp (HMC) is buying a stake in a company outside India. This is the first step in globalisation of the HMC brand,” Hero MotoCorp MD and CEO Pawan Munjal told reporters here.
“This equity partnership is a natural extension of our existing relationship with EBR. We will be working more closely with EBR now. We’ll not be working together just for the design but also for selling and marketing of products of both EBR and Hero brands in western countries (North America and Europe),” he added.
HMC has paid the first tranche of $15 million to EBR already, and the balance will be paid within nine months in a single tranche. The deal will be funded via internal accruals.
The company has set up a fully-owned subsidiary in the U.S. for the transaction. It said that its subsidiaries in the U.S and the Netherlands would play an important roles in future overseas acquisition and investments. HMC will have two directors on the board of EBR. However, the management of the U.S.-based firm will continue to be lead by its Chairman and CEO Erik Buell. Mr. Buell along with his wife holds remaining 50.8 per cent stake in the company.
Mr. Munjal said HMC would now get more “strategically involved” in the operations of the company. The acquisition will also give HMC newer markets such as North America where EBR is already present and also in Europe where it has been firming up plans to enter through its high-end bikes.
Asked if EBR bikes would be launched in India, he said, "There is a definite possibility but not immediately."
Mr. Munjal also said that the partnership would not immediately help in meeting its export targets and that the target would be met through the company's existing products.
To a question, he said HMC would soon enter the African market, starting with Kenya, Burkinafso and Ivory Coast followed by Angola. The company was also looking to set up two assembly plants in Africa—in Kenya and Nigeria, he added.
It may set up an assembly plant by the middle of next year in Colombia, where it is already present. The company is expecting its exports to touch 3.5 lakh units this fiscal from about 2 lakh units last year on the back of the market expansions it is undertaking currently.
Starting Diwali this year, the company said it would launch a slew of products for the domestic market. The products will mainly be refurbished versions of existing models across categories.
Models based on completely new platform would be rolled out in 2014, Mujal said, adding,
"The domestic market has been down for a long time but we think it will start picking up in the second half of the fiscal and we are beginning to prepare for that."
The shares of the company closed at Rs. 1,698.50 apiece on the BSE, up 2.18 per cent from its previous close.