Hero buys half of Erik Buell's company for $25M

India Today and other Indian financial news sources are reporting that Hero, India's largest motorcycle manufacturer, has just completed a deal to invest $25,000,000 in Erik Buell Racing.

According to India Today...

The country's largest two-wheeler maker Hero MotoCorp on Monday said it has picked up 49.2 per cent stake in US-based Erik Buell Racing (EBR) for USD 25 million (about Rs.148 crore).

The company has incorporated a wholly-owned subsidiary in the US by the name of HMCL (NA), Inc for the purposes of investing in Erik Buell Racing Inc, Hero MotoCorp (HMC) said in a filing to the BSE.

"HMCL(NA) has agreed to invest USD 25 million in EBR for a total stake of 49.2 per cent in the share capital of EBR. The first tranche of USD 15 million has been invested by HMCL (NA) on June 28, 2013," it added.

The second tranche of USD 10 million is proposed to be invested within the next nine months, the company added.

Last year, Hero MotoCorp had entered into technology sourcing pact with EBR as it looks to strengthen presence in the high-end bike segment.

The development is a part of the Indian firm's strategy to enhance technological prowess, post the break-up of the erstwhile joint venture with Honda - Hero Honda.

The idea behind entering into partnership with EBR was a part of HMC's overall strategy to have multiple technology source for different segments and enhance its own R&D capability.

In December 2010, the Hero Group and Honda had agreed to end their 26-year-old relationship, with the Indian partner agreeing to buy out Honda's 26 per cent stake in Hero Honda for Rs.3,841.83 crore.

The two erstwhile partners had, however, signed a new licensing agreement under which Hero will pay Honda 45 billion yen (about Rs.2,450 crore) till 2014.

Shares of HMC were trading at Rs.1,677.55 on the BSE in morning trade, up 0.92 per cent from their previous close.

This makes a lot of sense to me. Hero, like several other Indian companies (Mahindra leaps to mind, too) is making the jump from building Japanese designs under license to creating its own machines from scratch. And despite the fact that there are hundreds if not thousands of small, garage-building operations run by guys who'd claim they're capable of designing a bike for mass production, there are in fact a very small number of guys who can actually do it. More to the point, there's a very, very small number of guys who can say, "I've done that."

Erik's one of them. Hero effectively gets a proven R&D operation, albeit one a long way from its Indian base. I wonder if you can get a decent curry in Wisconsin? (Note to Erik: Don't even try to find a decent brat in India. And forget about their cheese curds.)

$25 million will also give EBR some breathing room. I'm not sure how much mass production that will buy, and how much as a result, EBR will be able to lower prices. But getting more bikes to market, sooner, and at more competitive prices, is obviously a key to that company's long term survival.

I'll shoot Erik a message now, and see if he cares to expound upon what, exactly, this means for EBR. (Besides the fact that the company's July 4 picnic will be damned cheerful.)