Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Companies / Hero to pay Rs3,842 cr for entire Honda stake
BackBack

Hero to pay Rs3,842 cr for entire Honda stake

Hero to pay Rs3,842 cr for entire Honda stake

Premium

New Delhi:Hero Investments Pvt. Ltd (HIPL), the investment arm of Hero Group, will pay Rs3,842 crore to buy the entire stake of Honda Motor Co. Ltd (HMC) in India’s largest motorcycle maker Hero Honda Motors Ltd.

Hero Group will pay Rs739.97 a share, a nearly 50% discount to Hero Honda’s closing stock price of Rs1,518.15 on Tuesday on the Bombay Stock Exchange. Hero Investments has secured most of the financing for the stake purchase, it said in a statement.

Also See | Losing Steam (PDF)

The company has signed agreements with private equity firms, including Bain Capital Llc and GIC, Singapore to fund the acquisition.

The private equity (PE)-assisted purchase of HMC’s 26% stake in Hero Honda is still being discussed by Bain Capital, GIC and the Hero Group.

“Bain is paying for 70% of the transaction, while the rest is being funded by Singapore government-owned GIC," said a person with direct knowledge of the development, asking not to be named.

Mint was unable to verify this independently with GIC.

Shares of Hero Honda fell 3% on the Bombay Stock Exchange compared with the benchmark Sensex’s 1.2% gain. Hero Investments may buy Honda’s stake in the Indian motorcycle venture “on or about 22 March", it said.

“The Hero Group has signed definitive agreements with private equity firms BC India Private Investors II, an affiliate of Bain Capital, and Lathe Investment Pvt. Ltd, a wholly owned subsidiary of Government of Singapore Investment Corporation (Ventures) Pvt. Ltd, in terms of which the PE firms will invest in HIPL to raise funds for this acquisition," the company said in a statement.

In addition, two other persons with direct knowledge of the development said no open offer will be triggered when the PE funds make the purchase as their effective ownership of Hero Honda, the listed entity, will be below 15%. They requested anonymity.

To be sure, analysts are asking why Honda has sold its stake at a 50% discount.

“The whole question is why did Honda Motor agree to sell at such a low rate," said Manish Sonthalia, who manages $300 million in equities, including Hero Honda shares, at Motilal Oswal Securities Ltd in Mumbai. “The road ahead for Hero looks quite good as there is confidence the sales numbers won’t suffer."

“There has to be some fine print with the deal. You cannot just sell your stake at a 50% or 100% discount," said an auto analyst at a leading brokerage. He declined to be identified. “There could be certain other things attached to it. Although they have said royalty will not go up, are they revisiting that stand? Or have they reached some agreement on R&D or sourcing of components?"

A Hero Group spokesman declined to comment on the matter beyond what has been said in its statement.

Hero Honda had earlier said the royalty payment to Honda will not go up. It might even come down, it said.

The company will get technological know-how from the Japanese firm till 2014, according to the licensing agreement signed in December. Proceeds from funds raised from GIC and Bain will be used to pay down the debt the Munjals have taken on to pay for Honda’s stake. The Hero Group had recently sought a nod from the Foreign Investment Promotion Board for an infusion of Rs4,500 crore in its investing company HIPL, which has been referred to the Cabinet Committee on Economic Affairs for a review as the amount exceeds Rs1,200 crore.

Bloomberg contributed to this story.

Graphics by Sandeep Bhatnagar/Mint

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 08 Mar 2011, 11:06 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie