The Mumbai-based investment advisory IAS has asked investors, to give a go-ahead for the merger between Hero MotoCorp Ltd (HMCL), the country's largest two-wheeler maker by sales, and Hero Investments Pvt Ltd (HIPL). Investors are set to vote on the merger on November 2.
According to IiAS, the economic share of profit remains the same for all shareholders before and after the transaction.
But direct voting control of the promoter family reduces from 52.2 per cent to 39.9 per cent, in line with their economic interests. The merger will also see increased liquidity in the stock as 12.29 per cent share held by the private equity (PE) investors will be now part of the free float.
Following the merger, Bain Capital and Lathe Investment will hold 8.58 and 3.71 per cent stake in HMCL, respectively. Both the PE players will be among the largest institutional holders. Another 17.2 per cent stake in HMCL is currently divided between Europacific Growth Fund, Aberdeen Global Indian Equity Fund and Life Insurance Corporation of India.
HIPL is the company through which Hero Group in December 2010 bought the 26 per cent stake of Japan's Honda Motor Co in Hero MotoCorp, then known as Hero Honda Motors Ltd. In 2011, PE firms Bain Capital and Lathe Investment (GIC Singapore) bought 19.81 per cent and 8.56 per cent stake in HIPL, respectively. This helped Munjals recover part of the money paid to the Honda group for stake purchase in HMCL.
The sale of Honda's stake to HIPL was at a discount to the market price at Rs 758.3 per share at a time when the market price was Rs 1,586 per share in 2010. The Munjal family will now realise this gain by increasing its shareholding from 26.2 per cent to 39.9 per cent, said IiAS in a report. On Friday, the share of HMCL closed at Rs 1,869 on the Bombay Stock Exchange.