Swedish truckmaker Volvo AB reached a tentative deal with Indian automaker Eicher Motors Ltd. Monday to set up a joint venture that will combine the companies' truck and bus businesses in India.
The two companies signed a letter of intent that requires Volvo to invest US$275 million (euro188 million) in the joint venture and transfer its existing truck dealer and service network _ valued at US$75 million (euro51 million) _ to the new company, Volvo said in a statement.
Eicher Motors will transfer its entire truck and bus operations, including its manufacturing plant in northern India, to the joint venture, the statement said.
India's rapid economic growth in recent years has boosted demand for trucks and buses, prompting several global manufacturers to expand operations here.
Japan's Nissan Motor Co. recently entered into a partnership with Indian truck and bus maker Ashok Leyland Ltd. to jointly develop and manufacture light commercial vehicles for the local market.
Eicher Motors, which has close to 10 percent of the Indian market, makes mostly small and medium-sized trucks, but last lately put more emphasis on heavy trucks amid expected demand in that category.
"Major investments in improved infrastructure and stricter rules for truck weights will strongly drive demand for heavy trucks (in India), which makes the market particularly attractive for the Volvo Group," Volvo's Chief Executive Leif Johansson said in the statement.
"Eicher is an ideal partner for Volvo on the Indian market," he said.
Eicher CEO Siddhartha Lal said the joint venture will benefit from Volvo's strong brand recognition and support in products, technology and finances.
The two companies will work on a final agreement, which would be subject to approval by regulators and shareholders of Eicher Motors.
"The transaction is expected to be completed before midyear 2008," the statement said.
Under the proposed deal, Volvo will directly own 45.6 percent stake in the joint venture company and acquire 8.1 percent stake in Eicher Motors, it said.
The joint venture will have about 2,300 employees.
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