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Home arrow Alliances and Joint Ventures arrow Volvo, Eicher to set up JV in India
Volvo, Eicher to set up JV in India Print E-mail
Written by Arjun   
Tuesday, 11 December 2007
Mumbai: Eicher Motors Ltd (EML) has announced that the Company and AB Volvo (Volvo) have signed a Letter of Intent (LOI) for the formation of a Joint Venture Company in a step down subsidiary of EML. The Commercial Vehicles Business (along with Components and Engineering Design Services Business) is proposed to be divested to this subsidiary. Volvo's Indian truck sales and service network would also become part of this subsidiary.
Eicher Motors will transfer its entire truck and bus operations, including its manufacturing plant in northern India, to the new company. The joint venture will have about 2,300 employees.

"This is a win-win deal," says EML's CEO and Managing Director, Siddhartha Lal. "We are looking forward to working with Volvo and to become a member of the largest global commercial vehicle alliance in the world. With Volvo's strong brand recognition and financial strength, and its support in products, technology and distribution, we will be well positioned to further develop our brand and product offering in India."

Salient features of the LOI:

1. The CV business of EML along with related components and design services business to be transferred into a new step down unlisted subsidiary Company at an enterprise value of USD 506 million.

2. Volvo will invest a total of USD 350 million in the JV Company, USD 275 million in cash and its Indian truck dealer and service network valued at USD 75 million.

3. The JV will be a subsidiary of EML, where EML will hold 54.4% of the equity and consolidate the JV's financials with EML. AB Volvo will hold 45.6% of the equity of the JV.

4. The JV will also include the truck distribution network of Volvo Group and will have exclusive distribution rights in India for all present and future trucks of AB Volvo.

5. All future projects in India for trucks to be routed through the JV Company by Volvo subject to agreement on terms and conditions.

6. The JV Company would be jointly managed by EML and Volvo on equal shared control basis.

7. Volvo will acquire 8.1% stake in EML from EML promoters.

8. Volvo's economic ownership of the step down subsidiary Company would be 50%.

Comments and perspectives:

Mr. Siddhartha Lal further said, "Eicher's aim has been to become a leading full-range commercial vehicle player in India and eventually in other developing markets. We already have a strong presence in the light and medium duty markets and have been making a strong push into the heavy commercial vehicle market. The proposed partnership with Volvo is very opportune and timely in our quest to strengthen our position in the Indian HCV market which recorded sales of over 220,000 vehicles last year with a revenue of around Rs 30,000 crores. A large cash infusion by Volvo will give the joint venture strong financial strength to be able to pursue an aggressive focus on the heavy segment. As a world leader in the heavy truck segment, Volvo's support in the joint-venture's products, technology, marketing and global distribution will position us very well to enhance our brand and product offering in India."

The parties' intent is to immediately combine and establish a joint service and dealer network for trucks in India, while initiating joint projects within product development and purchasing.

The LOI is non-binding in nature and both Companies will from now onwards initiate negotiations regarding final definitive agreements. Implementation of the transaction requires the approval of the relevant government authorities', Board of Directors and the shareholders of EML. The transaction is expected to be completed before mid-year 2008.
 
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