Cabinet approves Volvo - Eicher joint venture proposal

The cabinet committee on economic affairs today approved Swedish truckmaker Volvo's proposal to invest in a joint venture with tractor and commercial vehicles maker Eicher Motors Ltd.

Volvo will invest in the $275 million in the joint venture for a 45.6-per cent stake, with Eicher Motors holdong the remaining in the new venture, Eicher Motors India Limited, which was incorporated earlier this year.

Volvo will invest $350 million in the new joint venture, infuse $275 million in cash and transfer its Indian truck dealer and service network valued at $75 million into this joint venture.

Eicher will transfer its commercial vehicles business along with the components and engineering design services business to this subsidiary at an enterprise value of $506 million. The new business will have exclusive distribution rights in India for all present and future Volvo trucks in the Indian market.

In December 2007, Eicher Motors Ltd had signed a letter of intent with the Swedish auto makerto form a new, unlisted joint venture as a step down subsidiary of Eicher, in which the Indian company would hold a majority 54.4 per cent equity and consolidate its financials with itself. (See: Eicher Motors in joint venture pact with Volvo)

The announcement in December had also said that Volvo would acquire an 8.1 per cent stake in Eicher Motors Ltd from the promoters. On 16 May, the Foreign Investment Promotion Board cleared Volvo's proposal to acquire a $30-million stake in Eicher Motors.