The long-speculated parting of ways between the Indian Hero group and Japanese Honda Motor Co. was made official this week, though key financial details of the deal remained elusive for investors. The initial announcement did, however have a few positive implications for them.
One, it clarified that it was the Indian promoters, and not a clutch of PE firms, that were to buy out Honda's 26 per cent equity stake in the bike maker. This means that investors need not worry about a “floating” population of institutional investors picking up sizeable stakes in their company and threatening to offload it from time to time! Two, the announcement that royalty would be on current lines, or even lower, allays market fears that the Indian company would be forced to shell out out-sized royalty payments over the next few years. Besides, Hero can use Honda technology and brands until 2014. The partners have also inked a new licensing agreement. Three, the parting of ways would provide an impetus to Hero's own R&D efforts and help it actively explore new export markets which have thus far been closed owing to its partnership. So what are the lingering uncertainties for investors? Well, the actual price at which the stake transfer actually happens is the big one; especially with speculation about Hero buying out its partner at a substantial discount to the market price. With Honda Motors keen to strike out in a bigger way in Indian markets, the deal also means that Hero now has a more formidable Japanese rival in the already crowded two-wheeler market.
Source: Business Line