Volvo, EML seals deal for truck making

New Delhi: Swedish multinational AB Volvo and Eicher Motors Ltd (EML) sealed their joint venture deal to make trucks in India and in the process sent the latter’s stock soaring. The deal doubles the current stock market valuation of EML, with the promoters selling a part of their stake at Rs 691.68 per share.

The EML stock had closed on Friday at Rs 320.25 on the Bombay Stock Exchange. Today, after the announcement of the deal, it shot up 20 per cent in a falling market to close at Rs 384.30, hitting the upper circuit filter in the process.

Volvo will hold 50 per cent stake in the joint venture — VE Commercial Vehicles Ltd — through a combination of direct and indirect holdings, with EML taking the rest.

Volvo will hold 45.6 per cent of the joint venture directly and 4.4 per cent through the indirect route. It is picking up 8.1 per cent stake in EML which will hold 54.4 per cent stake in the joint venture. The stake is being bought from the promoters at Rs 691.68 a share for a total cost of Rs 157 crore.

The Swedish giant will pay the joint venture Rs 1,082.1 crore for the 45.6 per cent stake and also transfer its distribution and sales network in India. EML and the promoters have inked a non-compete agreement with Volvo for which the latter will pay them each Rs 39.35 crore.

The joint venture will be transferred EML’s commercial vehicles and allied components and design services businesses on a slump-sale basis for which the latter will be paid Rs 202.2 crore. The Royal Enfield two-wheeler business will remain with EML.

EML’s principal shareholder holding 58.2 per cent of its equity, Eicher Goodearth Investments Ltd, has proposed that the cash received from the slump-sale, net of taxes and future business requirements, be returned to shareholders through a buyback in the same proportion as sale of promoter holding to Volvo and at the same price of Rs 691.68 a share.

The proposal, if approved by the Securities and Exchange Board of India and shareholders, will result in buyback of 14.08 lakh shares from the public shareholders of EML equivalent to 13.12 per cent of its equity.