Hero to buy out Japanese partner Honda

The B M Munjal promoted Hero Group will buyout the Japanese partner Honda from the world's largest two wheeler producing venture, a deal for which would signed this month.

After months of negotiations, Hero Group is believed to have reached an agreement to acquire 26 per cent stake of Honda in the 26 year old joint venture but it is not clear at what price.

"The deal is at the final stages and could be signed within this month," a source said.

The two sides are in the final stages of working out the valuation.

According to sources in the know of the development, the two partners have agreed that current royalty rate per model paid to Honda will remain unchanged. The royalty paid in 2009 -10 on an average was 2.3 per cent to 3 per cent of sales.

Moreover, Honda will continue to provide technology and models to the Hero Group for a transition period, the minimum for which is till 2014 as per their existing joint venture agreement.

The source said that interest of investors and all stakeholders of Hero Honda have been given top priority during the negotiations and it would not be compromised at any cost.

When contacted, a Hero Honda spokesperson declined to comment. On the other hand, Honda said it and the Indian partner "regularly hold discussions about the future of the joint venture. However, at this time, nothing is available to disclose."

It is understood that the Hero Group is arranging funds on its own to finance the buyout of Honda's stake.

The Hero group and Honda hold 26 per cent each in Hero Honda, that started operations in 1984 to become the world's largest two-wheeler maker today.

In 2004, the Hero group and Honda had extended their agreement for 10 years, under which the Japanese partner would continue to provide technology to the JV. It was to come up for renewal in 2014.

Of late the market had been rife with speculation that the partnership is headed for a break-up with the partners unhappy with the existing circumstances.

While the Hero group wants the curbs imposed on export and technological development under their JV agreement to be lifted, Honda had wanted more royalty payment from the Indian firm.

Moreover, Honda's move to enter the Indian two-wheeler market through its 100 per cent subsidiary Honda Motorcycle & Scooter India in 2000 had not gone down well with the Indian partner.

Hero Honda scrips were trading at Rs 1,758.40 per share, down 1.62 per cent from the previous close at the Bombay Stock Exchange.