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SYNOPSIS FOR THE STUDY OF THE DEMERGER OF HERO HONDA

Yuktesh Ashok Pawar TY BMS - B Roll no. 182

INTRODUCTION:

A joint venture between the Hero Group and Honda Motor Company was established in 1984 as the Hero Honda Motors Ltd. at Dharuhera India. Hero is the brand name used by the Munjal family for their flagship company Hero Cycles Ltd. Honda group owns 26% stake in the company. However the Hero Honda group is set for a split in the end of 2010. After the split, the Munjal family will buy Honda Motors 26% stake for around $1 billion, or a little less than half the current value of the stock market.

The Japanese auto major will exit the JV through a series of off market transactions by giving the Munjal family an additional 26%. Honda which also has an independent fully owned two wheeler subsidy Honda motorcycle and scooter India (HMSI) will exit Hero Honda at a discount and get over $ 1 billion for its stake.

The Munjal family plans to compensate Honda through high royalty payouts, which could double to nearly 6% of net sales. However, key financial institutions have objected to this move, saying that the deal could favour the Munjals but be detrimental to other shareholders.

Is this split good? What are its effect on Hero group, HMSI and the customers? What are its effects in both domestic and international markets? This is what I would like to find out through my study about this demerger.

OBJECTIVE OF MY STUDY:

The demergers of such multibillion dollar corporations have a lot of effect on the both domestic and international markets, the dealers, customers, governments, etc. A lot of study is done by the management of such companies regarding the demerger, its effect, etc. In same way the demerger of Hero Honda also had effects on the domestic and the international market. What were the reasons that lead to this divorce in this 25 year marriage? Was it in the interest of both the companies? What were the factors that lead to this demerger? This is the objective of my study.

IMPORTANCE OF THE STUDY:

Mergers and demergers are complex. Their reasons vary. Their effects on markets are different. Through my research study, I would like to find out what decisions were taken, their importance, etc. The study would help to understand the decision making process of the management, etc

SCOPE OF THE STUDY:

In my research project, I am going to study the various reasons for demerger, its effects on economy, its effect on revenues, share market, dealers, customers, etc. Basically my scope is only till the effects of the demerger on the markets, competition and the customers.

NEED FOR THE STUDY:

It is said that we must learn from the mistake of others and prevent it from doing in future. We need to study the demerger, its process, the decisions taken, its effect, so that if any mistakes which were made, we wont repeat it in future.

RESEARCH METHODOLOGY:

The primary data would be collected from the general public. This data would be collected through questionnaire. This research would be a basic research (fundamental or pure research).