Hero Honda Demerger

Topics: Honda, Stock market, Motorcycle Pages: 22 (7672 words) Published: November 18, 2012
Table of Contents



A joint venture between Hero Group and Honda Motor Company was established in 1984 as the Hero Honda Motors Limited at Dharuhera Haryana.  Hero is the brand name used by the Munjal brothers for their flagship company Hero Cycles Ltd. Honda is world’s largest selling two wheeler company based in Japan. Munjal family and Honda group both own 26% stake in the joint venture Hero Honda motor Corporation. However the Hero Honda group was set for a split at the end of 2010. After the split Munjal family will buy Honda Motor’s 26% stake for around $1 billion, or a little less than half the current value of the stake in the stock market. The Japanese auto major will exit the JV through a series of off market transactions by giving the Munjal family an additional 26% share. Honda, which also has an independent fully owned two wheeler subsidiary (Honda Motorcycle and Scooter India (HMSI) will exit Hero Honda at a discount and get over $1 billion for its stake. The discount will be between 30% and 50% to the current value of Honda's stake as per the price of the stock. The Munjal family plans to compensate Honda through high royalty payouts, which could double to nearly 6% of net sales. However, key financial institutions have objected to this move, saying that the deal could favour the Munjals but be detrimental to other shareholders. Honda will continue to provide technology to Hero Honda motorbikes until 2014 for existing as well as future models. And after 2014 both companies Honda Motorcycle and Scooter India and Hero Motor corporation will compete with each other. Hero group will have full access of the overseas market as well and Honda group can compete full fledged in Indian market In this project report we have analyzed strategic motives behind the deal, differences which led to the fall of joint venture, legal and regulatory implications of the deal (through various disclosure requirements and new licensing agreements).


Hero group is world’s largest selling bicycle company and Honda motor cop. Is world’s largest two wheeler company. This was India’s most successful joint venture. Merger of these two companies one Indian and one foreign company has to go with lots of legal regulations and strategic business implications. Demerger of these companies has to deal with many legal regulations and this merger has been taken based on changing business strategies and markets. Key concerns that this project has dealt with are. * How much successful the joint venture was?

* Reasons of success of the JV.
* What are the main clauses in MOU signed by the two companies? * What lead them to demerger?
* What is the mode of exit from demerger?
* Will open offer be required to make by hero group?
* Mode of funding by hero group to acquire 26% share of Honda group. * Does the investment by Investors in hero group require prior Government or FIPB approval? * What are the discloser requirements under proposed share transfer?


Analysing legal, financial and strategic issues in demerger of two companies involving an Indian and a foreign company.

The demerger involves many key issues to deal with before it will go on demerger. The legal issues has some key components like * Open offer under takeover code.
* Prior government approval or FIPB approval.
* Disclosure requirement by Hero group under takeover code and under SEB guidelines. * Mode of acquisition of shares.
* Tax implications on Honda group Japan.

Mode of financing by hero group to take 26% shares of Honda group is also a point of concern the key area of emphasis on it are * Bridge Financing
* Funding from private equity investors...
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