Hero Honda split, its Now Hero and Honda

The two partners in Hero Honda Ltd have finally decided to ride off on their own in different directions. Their journey in the next few years will be closely watched as it could have a profound effect on the booming market for two wheelers, say industry experts. The Hero Honda board met on Wednesday to give its stamp of approval on a deal to end a 26-year-old partnership that began when India was tentatively opening its doors to multinational investment and a growing middle class was coming into its own. “This is the most important announcement I have made in the last 25 years,” said Pawan Munjal, Hero Honda’s managing director and chief executive officer.

The Munjals of the Hero group will buy out the 26% stake held by Honda Motor Co. Ltd for an undisclosed amount, in a deal that will likely be funded by debt. The purchase will be done in a “phased manner” in 2011 through two or more promoters, said senior Hero Honda officials. Financiers said this is an indication that the Munjals would first raise a bridge loan, and then go in for a term loan or bring in private equity firms at a later stage. Hero Honda proved to be one of the most successful of a bunch of similar collaborations between Indian and Japanese automobile companies in the early 1980s, though the separation seemed to be on the cards ever since Honda set up a wholly owned unit, Honda Motorcycle and Scooter India Ltd, in 1999. It was the only one of three Honda joint ventures in India that endured a testimony to the success of the venture. The two companies will face unique challenges in the years ahead as they rebuild their strategies.