Details matter in Hero Honda deal | india | Hindustan Times
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Details matter in Hero Honda deal

Last week’s buyout of Japan’s Honda Motor Company from Hero Honda Motor Ltd by the Munjal family is of considerable significance, as it ended a 26-year-old joint venture that created the world’s biggest two-wheeler maker.

india Updated: Dec 20, 2010 21:59 IST

Last week’s buyout of Japan’s Honda Motor Company from Hero Honda Motor Ltd by the Munjal family is of considerable significance, as it ended a 26-year-old joint venture that created the world’s biggest two-wheeler maker.

While the parting of ways between Honda and the Munjals was never in any doubt, the exact mechanism that was finally employed was not known, at least to the ordinary shareholder of Hero Honda.

In theory, Honda could have bought out the Munjals, or it could have sold off its stake to some other party. Any of these would have meant very different future prospects for the company.

However, though the deal itself has been announced, its details are still a secret. The price at which Honda is selling its stake is not yet known to the public. The two parties seem to suggest that this was a matter between them and in response to criticism, they have said that they will reveal the price when the transaction is actually effected.

That is no more or no less transparency than the letter of the law requires. However, that is certainly a lot less transparency keen protagonists of good corporate governance might suggest.

Some analysts have voiced the suspicion that Honda may accept a price a lot lower than the R8,000 crore or so that its stake is worth, in exchange for a higher royalty. This is just speculation but something like this would mean that the company is effectively paying for the Munjals’ stake. There’s no basis for suspecting something like this, but Honda and the Munjals should pay attention to the fact that things like this are being discussed.

The point is not whether they are legally required to be transparent about the price at this stage. The point is that they have consciously chosen not to reveal the price.

After all, the deal is done, so there must be a price (or at least a basis for deciding the exact price later.)

Honda and the Munjals have deliberately made the decision that this price must at this stage be kept a secret from other shareholders. Therefore, there is something about this price that is an issue.

At least, that’s the logic that suggests itself. The two parties must ponder over that as they separately chart out their respective next phases in the world’s second fastest growing economy.