The Hero Group on Thursday announced that it would buyout the entire 26 per cent stake of its partner Honda Motor Company Group in Hero Honda, India's No.1 bike manufacturer, thus breaking its 26-year-old partnership with the Japanese auto major.
Without disclosing the size of the deal, a company release said: “The decision to restructure the equity has been reached in a cordial and amicable manner…As per the MoU, Hero Group will buy the entire 26 per cent equity stake of Honda Motor in Hero Honda Motors Ltd (HHML) in a phased manner from two or more qualified promoters. Upon completion of the transaction, Hero Group will be the sole promoters of the company.”
It was in 1984 that the Hero Group joined hands with Honda Motor Co. to become not only India's but also world's largest two-wheeler manufacturer.
In 2009-10, Hero Honda had sold 46-lakh two-wheelers, capturing 48 per cent of the Indian two-wheeler market, which is the second biggest in the world after China.
“This is the most important announcement I have made in the last 25 years... The board has approved an MoU between Hero Honda and Honda. The two companies will sign a definitive agreement within the next few weeks. Now, with this new arrangement, we are set to charter new segments and geographies and develop new products. This marks the beginning of a revitalised journey of growth for the company and its people and business associates,” HHML Managing Director and CEO Pawan Munjal told journalists here.
Hero Honda will continue to produce and sell the existing models, while new models would be also launched. However, all future products will be rolled out under the new licensing agreement between Hero Group and Honda. Hero Honda brand name will also be changed over time.
Commenting on the deal, 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 licence to enable continued production and sales of current products as well as licence for new products.” Declining to share the deal value, Mr. Munjal said: “Royalty (to Honda) will remain in line or even lower...it is incorrect that royalty will go up to 8 per cent.” The royalty paid in 2009-10 on an average stood at 2.3 per cent to 3 per cent of sales.
The new licensing arrangement signed between the Hero Group and Honda Motor Co., Japan, would also enable higher growth by giving it (Hero Group) the freedom to develop its own research and development capabilities and exploit global export and manufacturing opportunities.
The two-wheeler major will also start exporting products across the globe and look for manufacturing opportunities.
“Hero Honda can go out and can make its presence felt globally,” Mr. Munjal said, adding that the company could now establish distribution networks across the globe.