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All clear for Hero and Honda to part ways

Our Bureau

New Delhi, Jan. 24

Hero Honda Motors Ltd announced on Monday that it has executed a final binding licensing agreement with Japan's Honda Motor Co. The execution of the agreement paves the way for the split between the Hero Group and Honda Motor Co.

Hero Honda told the Bombay Stock Exchange that the agreement, which was signed last week, pertains to the existing and new products that it will offer in the Indian market once the Japanese firm exits the joint venture.

The agreement is in line with the memorandum of understanding approved by the boards of directors of the two companies on December 16, 2010.

Hero Honda also announced that the board of directors has re-appointed Mr Toshiaki Nakagawa as Joint Managing Director as per the resolution circulated on January 15.

Under the agreement, Hero Group will buy Honda Motor's 26 per cent stake in Hero Honda for an undisclosed sum. However, as per the market value when the agreement was announced last year, Honda Motor's stake was valued close to $2 billion.

Hero Honda is a 26-year-old joint venture with each partner holding a 26 per cent stake and the rest is with the public shareholders.

Mr Pawan Munjal, Managing Director and Chief Executive Officer, Hero Honda, had stated at the time that the deal is likely to be completed “sometime” in 2011.

As per the separation deal, Hero Honda will continue to pay royalty at the current levels to Honda. Hero Honda would also be able to export two-wheelers and develop its own R&D capabilities. The royalty levels would gradually come down as Hero Group develops its own R&D capabilities, Mr Munjal had said.

Hero Honda's shares closed at Rs 1,750.15, down by 0.33 per cent at the BSE on Monday.

More Stories on : Outlook | Two/Three Wheelers | Hero Honda Motors Ltd

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