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Swedish Volvo, and Eicher to set up JV in India

Indian Eicher Motors Ltd (EML) has announced that the company and Volvo AB have signed a Letter of Intent (LOI) for the formation of a joint venture company in a step down subsidiary of EML.

The Commercial Vehicles Business (along with Components and Engineering Design Services Business) is proposed to be divested to this subsidiary. Volvo’s Indian truck sales and service network would also become part of this subsidiary. Eicher Motors will transfer its entire truck and bus operations, including its manufacturing plant in northern India, to the new company. The joint venture will have about 2,300 employees. „This is a win-win deal,” says EML’s CEO and Managing Director, Siddhartha Lal. „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.”

Salient features of the LOI:
1. The CV business of EML along with related components and design services business to be transferred into a new step down unlisted subsidiary Company at an enterprise value of $506 million.
2. Volvo will invest a total of $350 million in the JV Company, $275 million in cash and its Indian truck dealer and service network valued at $75 million.
3. The JV will be a subsidiary of EML, where EML will hold 54.4% of the equity and consolidate the JV’s financials with EML. Volvo AB will hold 45.6% of the equity of the JV.
4. The JV will also include the truck distribution network of Volvo Group and will have exclusive distribution rights in India for all present and future trucks of Volvo AB.
5. All future projects in India for trucks to be routed through the JV Company by Volvo subject to agreement on terms and conditions.
6. The JV Company would be jointly managed by EML and Volvo on equal shared control basis.
7. Volvo will acquire 8.1% stake in EML from EML promoters.
8. Volvo’s economic ownership of the step down subsidiary Company would be 50%. (