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Home arrow Alliances and Joint Ventures arrow Eicher and Volvo sign definitive agreements to formalise Joint Venture
Eicher and Volvo sign definitive agreements to formalise Joint Venture Print E-mail
Written by Ganesh   
Tuesday, 27 May 2008
New Delhi: With the signing of definitive agreements, Eicher Motors Limited (EML) and AB Volvo (Volvo) have formalised their joint venture partnership. The joint venture comprises Eicher Motors’ entire truck and bus operations and the Volvo Group’s Indian truck sales and service operations. Besides commercial vehicles the joint venture also encompasses the components and engineering design services businesses of EML. However, Royal Enfield Motorcycles will remain outside the purview of the joint venture and continue to operate under the aegis of EML.

Eicher and Volvo sign definitive agreements to formalise Joint VentureThe Joint Venture Company (JVC) has its genesis in early December of last year when EML and Volvo had signed a Letter of Intent to forge this alliance. It is proposed to be named ‘VE Commercial Vehicles Limited’.

“This agreement provides a very solid platform for further growth on the Indian market for heavy trucks, which is the fourth largest in the world,” says Pär Östberg, member of the Volvo Group Executive Management and responsible for the Group’s Asian truck operations. “India is investing heavily in improving its infrastructure and together with Eicher we have highly favorable conditions to further strengthen our position on the Indian market.”

Sharing Par Ostberg’s conviction, Siddhartha Lal, Managing Director and CEO, EML, affirms, “This joint venture draws on Volvo’s global strength in technology and distribution, especially in heavy duty trucks and on Eicher’s success in India and its innovative low-cost platform. We will work towards shaping the commercial vehicle industry in India and developing markets.”

Salient features of the definitive agreements:

1. The CV business of EML along with related components and design services business will be transferred to the JVC, a step down unlisted subsidiary of EML, on a slump sales basis at a value of Rs. 2,022 million.
2. Volvo will contribute Rs.10,821 million in cash and will also transfer its Indian truck distribution and service network to the JVC. In lieu of this, Volvo will be allotted 45.6% equity shares in the JVC.
3. EML will hold the balance 54.4% equity and thus the JVC will be a subsidiary of EML. The JVC’s financials will be consolidated with the financials of EML.
4. Volvo will also buy 8.1% equity stake in EML from the promoters of EML at a consideration of Rs. 1574 million @ Rs. 691.68 per share.
5. Taking into account its direct and indirect holding, Volvo’s economic ownership of the JVC will be 50%.
6. The JVC is to be jointly managed by EML and Volvo with shared management and equal representation rights on the Board of Directors. Mr. Par Ostberg will be appointed as Chairman and Mr. Siddhartha Lal will assume the role of Managing Director and CEO of the JVC. The other management positions will be appointed by the Board.
7. The JVC will have exclusive distribution rights in India for all present and future Volvo truck products.
8. All future Volvo Group truck projects in India will be routed through the JVC subject to agreement on terms and conditions.
9. EML and Promoters have agreed not to compete in relation to trucks and buses business with JVC. Volvo shall pay a non-compete consideration of Rs. 393.5 million each to EML and the promoters.

The closing of the transaction to form the Joint Venture will take place on receipt of requisite Government approvals, likely to be received shortly. The likely date for the start is July 1st, 2008.

Purpose and plans:

Elucidating on the larger perspective of the JV, Siddhartha Lal said, “The main purpose of the JV is to become an industry leader driving modernisation in commercial transportation in India and in the developing world.”

“We will pursue an aggressive strategy in the heavy duty trucks segment, where Eicher’s complete range and local market knowledge will be complimented by Volvo’s global expertise in this segment and their already strong presence in the high-end of the Indian market. A large part of the investments of this JV in design, development, manufacturing, systems, distribution and services will be towards creating a strong position in this market.”

“We will work at growing our already strong position in the light and medium duty truck segment by continually improving our offerings and maintaining our status as the ‘fuel-efficiency leader’. The JV will also work with Volvo Buses to create a full-range of buses – and work cohesively towards giving our customers the best and widest bus offering.”

“Eicher’s wide distribution in India will be complimented well with Volvo’s focused network in India and will be the foundation of what we want to create as the best and most responsive distribution in the country. In addition, Eicher trucks and buses will be exported through Volvo’s vast global network, especially to developing markets, and will help us to become a significant player outside of South Asia as well.”

“In addition, we see a good growth and future for the components and engineering services business areas which will continue to expand their customer base while greatly benefiting from the JV and Volvo as anchor customers.”

“With large cash reserves and an excellent starting position, we believe that this JV will set a new direction in the commercial vehicle industry.”

Surplus cash at EML:

Post closing, EML will receive a consideration of Rs. 2,022 million and will be debt free. After payment of taxes and taking into account fund requirements for future plans, EML may still have surplus cash. EML Board would thus need to consider the best utilisation of this surplus cash in the interest of shareholders. Eicher Goodearth Investments Limited (“EGIL”), as promoter and principal shareholder of EML, intends to propose to EML Board to consider buy back of shares from its public shareholders in the same proportion as sale of promoter holding to Volvo (ratio of promoter shares sold to Volvo to the total holding of shares by promoters) at the same price of Rs. 691.68 per share subject to successful closing of agreements and obtaining an exemption/ clarification from SEBI that post completion of buy back, promoters shareholding in EML would be in compliance with SEBI regulations and terms for continued listing.

If approved, this would result in buyback of 1,408,969 shares from the public share holders, equivalent to about 13.12% of the public holding in EML.

About Eicher Goodearth Investments Limited (EGIL):
EGIL is the holding company of Eicher Motors Limited (currently holding 58.2% equity share capital of EML).

About Eicher Motors Limited (EML):
Eicher Motors was founded in 1982 to manufacture a range of reliable, fuel-efficient commercial vehicles of contemporary technology. As a significant player of the Indian automobile industry, it is involved in the design, manufacture and marketing of commercial vehicles, motorcycles (Royal Enfield), components as well as providing engineering solutions. EML is a publicly-held company and its shares are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
http://www.eicherworld.com

About AB Volvo:
The Volvo Group is one of the world’s leading manufacturers of trucks, buses and construction equipment, drive systems for marine and industrial applications, aerospace components and services. The Group also provides complete solutions for financing and service. The Volvo Group, which employs about 100,000 people, has production facilities in 19 countries and sells their products in more than 180 markets. Annual sales of the Volvo Group amount to about SEK 285 billion. The Volvo Group is a publicly-held company headquartered in Göteborg, Sweden. Volvo shares are listed on OMX Nordic Exchange Stockholm.
http://www.volvo.com

 
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