Eicher Motors in joint venture pact with Volvo

By Our Corporate Bureau | 10 Dec 2007

Eicher Motors Ltd has signed a letter of intent with AB Volvo of Sweden to form a new, unlisted joint venture as a step down subsidiary of Eicher, in which the Indian company would hold a majority 54.4 per cent equity and consolidate its financials with itself.

Volvo will hold the remaining 45.6 per cent stake, for which it will invest $350 million in the new joint venture, infuse $275 million in cash and transfer its Indian truck dealer and service network valued at $75 million would also become part of this subsidiary.

Volvo will also acquire an 8.1 per cent stake in Eicher Motors Ltd from the promoters.

Eicher will transfer its commercial vehicles business along with the components and engineering design services business to this subsidiary at an enterprise value of $506 million. The new business will also and will have exclusive distribution rights in India for all present and future Volvo trucks in the Indian market.

"Eicher's aim has been to become a leading full-range commercial vehicle player in India and eventually in other developing markets,'' said Siddhartha Lal, Eicher's CEO and managing director in a statement. "This is a win-win deal. 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."

The statement added that Volvo's economic ownership of the step down subsidiary Company would be 50 per cent. Accordingly, EML and Volvo will jointly manage the new company on equal shared control basis.

According to the agreement between Eicher and Volvo, Volvo will rout all future projects in India for trucks through this joint venture company, subject to agreement on terms and conditions.

'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,'' said Lal. ''The proposed partnership with Volvo is very opportune and timely in our quest to strengthen our position in the Indian heavy commercial vehicles market, which recorded sales of over 220,000 vehicles last year with a revenue of around Rs 30,000 crore.

''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."

Eicher and Volvo plan to immediately combine and establish a joint service and dealer network for trucks in India, while initiating joint projects within product development and purchasing.


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