The Escorts - Yamaha Motors Break-Up


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Case Details:

Case Code : BSTR008
Case Length : 7 Pages
Period : 1985-2001
Organization : Escorts, Yamaha Motors
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Automobile & Automotive

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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EXCERPTS

Escorts, Yamaha Tie the Knot

In 1985, Yamaha Motors entered into a technical support agreement with Escorts, and started local production of Yamaha motorcycles. In 1995, Yamaha and Escorts signed another contract, establishing EYML to manufacture and market motorcycles in India. Each company invested 50% of the capital for the original venture (Refer Table IV). EYML produced a wide range of motorcycles for the urban and rural markets at its Faridabad (Haryana) and Surajpur (Uttar Pradesh) plants. The joint venture manufactured Rajdoot motorcycles at Faridabad and the RX and four-stroke YBX series at Surajpur...

The Honeymoon

In 1996, Escorts transferred its motorcycle manufacturing facility at Faridabad to the joint venture. Anil Nanda, chairman, EYML, said the Surajpur and Faridabad facilities would be modernized and upgraded with a Rs 3.75 billion budget. EYML would turn out upgraded versions of the current high performance bike, RX 100, and RXG 135 to meet stringent emission norms. In 1997, a further upgraded RXZ 135, a sleeker version would be launched and the 4 stroke YBX 125 would be launched in February 1998 to meet the growing demand for fuel-efficient bikes. YBX 125 would deliver the best of both worlds-performance along with fuel efficiency. EYML also planned to launch 2-3 product variants every year...

The Honeymoon is Over

In April 2000, Escorts announced that it was likely to sell around 20% stake in EYML to Yamaha Motors. Escorts would thus become a minority shareholder in EYML. However, an official said that Escorts' holding in the joint venture would not be less than 26% and it would not exit from the joint venture. Said Nanda, "I have no intentions of selling off the entire stake to Yamaha. Escorts will retain the 26 per cent stake we now hold in the venture." In late April 2000, the board of Escorts approved the proposal to divest 24% equity. With the change in the equity pattern, Yamaha Motors would control the management of the joint venture. Commented Nanda, "We have always believed that business relationships are driven by the value added by each partner...

The Divorce

In May 2001, Yamaha Motors struck a deal with Escorts for acquiring the latter's 26% shareholding in YMEL for Rs 700 million.

The deal marked Escort's exit from the joint venture. Yamaha Motors would now hold 100% stake in the company.

Commenting on Escorts' exit from the joint venture, an official said, "We would like to get out of businesses where we are not in the driver's seat and in the case of Yamaha technology it was not a part of our expertise." He said Escorts would now concentrate on agri-business, telecom and healthcare...

The Road Ahead

Escorts' exit from the joint venture seemed to be a well-planned move. The group had already moved out of businesses where it believed it did not have a sustainable advantage. On August 22, 2000 at the group's Annual General Meeting, Nanda announced that Escorts would now focus on the new economy. He said, "To continuously create value, we have strategically moved our investments from low-growth areas to high growth avenues, or in other words, shifted our focus to businesses, which have a potential for higher growth and profitability..."

 

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