Volvo, Eicher set up CV venture

Sweden-based Volvo AB and Delhi-based Eicher Motors announced a joint venture in India, the fifth biggest commercial vehicles market in the world, which will take on leaders Tata Motors and Ashok Leyland by selling the full range.

Volvo, the world's second-largest truck maker, will infuse $350 million for a direct holding of 45.6 per cent and spend an undisclosed amount to buy 8.1 per cent in Eicher Motors for a total control of 50 per cent in the new company.

Volvo will add its Indian truck sales business, valued at $75 million, and $275 million in cash to the venture.

Eicher Motors will transfer its commercial vehicles, components and engineering businesses to the new company, in lieu of which it will get 54.4 per cent equity in the new venture that is yet to be named.

According to a statement, the new company will be "jointly managed by Eicher Motors and Volvo on an equal shared control basis". The two will now initiate negotiations regarding final definitive agreements.

The partnership will improve Volvo's access to the Indian truck market, where Eicher controls more than a quarter of light and medium-heavy truck sales.

The growth projections for the Indian commercial vehicles market are healthy, mainly due to improving infrastructure and new emission and safety rules. The average growth has been 20 per cent in each of the last three years.

Nissan Motor has formed ventures with Ashok Leyland for light trucks, engines and transmissions. Daimler, which recently began assembling some Actros trucks locally, is scheduled to announce a partner soon. MAN AG and Navistar International Corp formed joint ventures in India in the past year.

According to a letter of intent signed today, Eicher Motors' Pithampur manufacturing unit and Volvo's distribution network will come directly under the new venture, which will become operational on July 1 next year.

"Our bus business in India is with a separate partner (Jaico) and this would remain so. Our Bangalore facility will continue to produce Volvo buses and trucks, while Eicher will roll out products from its facility in Pithampur," AB Volvo Executive Vice-President Jorma Halonen said at a press conference in New Delhi.

Eicher shares hit an all-time high of Rs 599 ahead of the announcement today, valuing the company at $427 million, but fell as much as 19 per cent after it. Analysts said the market was expecting Volvo to buy a larger chunk of equity in the company, which would have triggered an open offer under the takeover rules.

Eicher Motors' CEO and Managing Director Siddhartha Lal said: "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."

There has been speculation of a deal by Volvo to expand its footprint in India, especially after it boosted its presence in Asia with the acquisition of Japan's Nissan Diesel early this year.

Eicher, which makes trucks in the 5- to 25-tonne range, has said it would launch at least three heavy trucks by March. It is raising its annual truck capacity to more than 48,000 units from the current 38,000.

Volvo will help Eicher export its commercial vehicles to emerging markets in Asia, Africa and Latin America.