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Volvo to ride Eicher trucks

Eicher Motors Limited will transfer its entire truck business as a going concern to the JV at $506 mn, report Deepak Joshi & Arun Kumar.

business Updated: Dec 10, 2007 21:29 IST
Deepak Joshi & Arun Kumar

Eicher Motors Limited (EML) has decided to form a joint venture with Swedish auto major AB Volvo to manufacture an entire range of commercial vehicles.

As per the agreement, Eicher would transfer its entire truck business as a going concern to the joint venture at a valuation of $506 million in lieu of 54.4 per cent stake and some cash, while Volvo will infuse $350 million for a 45.6 per cent stake. Volvo would give $275 million in cash and transfer its existing truck business, including its dealer network, to the joint venture at $75 million.

EML would also get some cash and transfer a part of its debt to the venture as the equity value of the 54.4 per cent stake would be $418 million, said EML chief executive officer and managing director Siddhartha Lal. Sources in the company said that that EML would get cash in the range of around $60 million.

In addition to this, Volvo will acquire 8.1 per cent equity stake in the Eicher Motors from the promoters so that its effective economic ownership in the joint venture would be 50 per cent.

Both companies would jointly manage the joint venture company on equal shared-control basis. After the deal, the promoters’ stake in Eicher Motors would come down to 53.66 per cent. In case Volvo buys additional shares of EML from the open market, its effective ownership in the joint venture would be over 50 per cent.

On whether Volvo had given any undertaking that it would not increase its holding in Eicher Motors, Jorma Halomen, executive vice president and deputy chief executive officer of AB Volvo, declined to comment. “We are not going disclose any future development in term of financial structuring or product range that are going to be launched in India,” he said. In fact, both companies have signed a letter of intent and further details are yet to be finalised. Even the price of the 8.1 per cent stake sale to Volvo is yet to be finalised, Lal said.

According to sources, Volvo would acquire these shares at a significant premium to the underlying market price. In fact, the commercial vehicles division, which is going to hive off into a subsidiary at $508 million or Rs 2,000 crore, results into Rs 714 per equity share of Eicher Motors.