TOKYO/MUMBAI (Reuters) - Japan 's Honda Motor and India's Hero Group are in discussions to review the structure of their joint venture, Hero Honda Motors, India's top seller of motorcycles.
Speculation has swirled since summer that Honda, the world's biggest motorcycle maker, would reduce its 26 percent stake in the 26-year-old venture to focus its energy on wholly owned unit Honda Motorcycle & Scooter India, set up in 1999.
Media reported on Thursday that Honda has "formally decided" to sell its stake in Hero Honda.
Earlier media reports have the Munjal family's Hero Group acquiring Honda's 26 percent stake for $1 billion to $1.2 billion, a discount of about half to their market value, while Hero would pay bigger royalties to Honda for its motorbike technology. The Hero Group also owns 26 percent of Hero Honda.
Hero Honda's shares sank as much as 9 percent on Wednesday on news that a break-up agreement was imminent.
Both companies have declined to comment on the talks.
Below are some questions and answers on the reasons behind the discussions, and the likely aftermath.
WHY WOULD HONDA MOTOR WANT OUT OF HERO HONDA?
Companies prefer the freedom of making their own decisions, and having a partner often gets in the way.
When Hero Honda was formed in 1984, Indian regulations forbade foreign firms from owning 100 percent subsidiaries in the country. For Honda, entering India on its own without knowledge of the local market was risky anyway, and having Hero as a partner was valuable for the group's marketing expertise.
By the time the government relaxed those regulations in the 1990s, Honda had accumulated enough know-how to set up a wholly owned unit, Honda Motorcycle & Scooter India (HMSI), in 1999.
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Saturday, December 18, 2010
Q+A-Why is Hero Honda preparing to break up?
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