Honda’s exit from Hero raises questions

Honda’s exit from Hero raises questions

New Delhi: For all the progress India has made on disclosure norms, things can still be vague when it comes to some transactions of listed companies. Like the promoter deal in Hero Honda.

The Hero Group’s investment arm is paying 739.97 per share to buy out Honda’s 26% in India’s largest motorcycle maker. Hero Honda shares lost 0.7% perhaps because investors were shocked at the deal value. Of course, they might have been expressing their displeasure since Hero Honda is heavily dependent on its Japanese partner for technology.

The deal price is a 51% discount to Hero Honda’s closing price of 1,520.

At a press conference to announce the deal, Hero Honda had said the royalties would not go up. But then again, it’s hard to figure out the economic logic of this deal, the details of which may never be revealed publicly.

Perhaps, it’s the price that foreign companies have to pay to get out of unhappy marriages. Remember, Suzuki sold its stake to TVS at 15 per share in 2001 when the market price was ruling at around 80.

The deal is being routed through Hero Investments Private Limited (HIPL), an investment arm of the Hero Group. HIPL, which holds 17.33% stake in Hero Honda, is planning to bring in PE funds to finance the transaction. The firm has recently sought government approval to bring in foreign investment of 4,500 crore.

At what price will the Hero group sell a stake to these private equity firms?