Honda in discussion for selling Hero stake to Munjals

As per the industry sources Japan’s Honda is in talks for selling its 26% stake in Hero Honda Motors. Hero Honda Motors has been a very successful 26-year-old joint venture which is responsible for transforming the local motorcycle industry and encouraging a whole generation of Indians to take to biking. A source close to the matter said that Honda and its Indian partner, the BM Munjal-owned Hero group are working out a formula that would enable the Japanese firm to sell its shares at a discount. A Munjal family company will purchase most of the shares by taking some help from private equity firms, added the source. After the news was broken, the shares of Hero Honda were drove down because the investors were worried about the effect the separation will have on India’s largest motorcycle maker. However the management of both the companies – Hero Group and Honda is denying it. A Honda Motors spokesman said that the company had no such plans to sell. A top Hero Honda executive was quoted saying that stake sale was not even on the table, though he added that discussions between the two partners revolved around securing the future of the joint venture. Before the denials triggered a pull-back, Hero Honda shares sank heavily by 6.8%. The shares ended at only 0.11% at Rs 1,790. The person associated with the situation said that talks are on and the Munjal-owned company incorporated overseas will buy the shares from Honda and take the Hero group’s stake in the motorcycle firm to 52%. He further added that the Hero group will raise money from private equity investors in the new company after the first stage of the transaction. The talks are also going on with three private equity firms. A senior auto industry official, however, said that Honda and the Hero group have been arguing over certain issues like royalty and spare parts purchases for some time now. Though Honda group wants to raise its royalty from the sales of the joint venture but the group has not been successful to do so because bulk of the sales are contributed by Splendor and Passion, the two old bikes. It was in the year 1984 that the Hero group and Honda came together. The aim of this joint venture was to build and sell motorbikes in the country and undoubtedly that venture was a hit. Now the separation at India’s largest motorcycle maker will have large implications for the company and its shareholders.