Marriage with Volvo, the world's second-largest truckmaker, will certainly provide Eicher the much-needed traction.Indian association with global partners still continues. And this time, it's an Indo-Swedish affair. To give a fillip to its Commercial Vehicles (CV) segment, Delhi-based Eicher Motors Limited (EML) has tied the knot with world's second-largest truckmaker, Swedish giant AB Volvo. Eicher which already boasts of a strong presence in the light and medium vehicles market has been making serious efforts for quite sometime to scale up its operations in the heavy CV market. And the partnership with Volvo seems to be a strategic fit as it would definitely give Eicher a strong foothold in the CV segment and thus help the truckmaker take on the existing biggies such as Tata Motors and Ashok Leyland. A hefty cash infusion of $350 mn by Volvo will give the Joint Venture (JV) the strong financial mileage to zero-in-on heavy vehicles segment.

Whatsoever, soon after the official announcement of the deal, the share price of Volvo increased by 0.75 krona, or 0.6%, to touch 117.5 kronor. And, in the last week before the negotiation, the market in India was in a rapturous mood amidst rumors that Volvo would buy a majority stake in Eicher. The euphoric market sentiment was reflected in the spiraling of Eicher's stock by 8% to close at Rs. 545 on the Bombay Stock Exchange (BSE). In fact, in the last one month before the deal, Eicher's stock mounted by almost 27% on the BSE. But immediately after the announcement of the JV, Eicher's shares declined sharply as the market started correcting itself. However, the shares of Eicher which touched a 52-week high of Rs. 599, soon lost the momentum and plummeted to Rs. 442.30 just after the announcement of the JV. Analysts attribute the fall to a lower valuation of the JV at $856 mn instead of $1 bn as anticipated earlier.

Eicher and Volvo have signed a letter of intent to form a JV with an equity value of $768 mn and are expecting the new company to be operational by July next year. While Eicher is making an equity contribution of $418 mn, the Stockholm-listed company, Volvo, will pump in $350 mn into the venture, of which $275 mn will be paid in cash and the remaining from its domestic truck dealer and service network which is worth $75 mn. Eicher will invest another $88 mn as a portion of debt into the new company, which will make the deal worth $856 mn.

The Analyst Magazine, Eicher-Volvo JV, Commercial Vehicles, CV, Eicher Motors Limited, EML, Tata Motors, Joint Venture, JV, Bombay Stock Exchange, BSE, Analysts, Siddhartha Lal, Swedish company, International Truck and Engine Corp, ITEC, Multinational corporations, MNCs, Global auto companies, State Transport Corporations, STC, Indian economy, Acquisition, Ashok Leyland.