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 : Auto and Ancillaries

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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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"The role of the Escorts group was always minuscule since Yamaha has been gradually hiking its stake in the joint venture. The Nandas of the Escorts were only promoters in the JV."

- Yamaha Motors' official commenting on whether Escorts' exit form the joint venture would affect the performance of Yamaha Motors in India.


On April 24, 2000, at the board meeting of Escorts Limited (Escorts), (Refer Table III for a profile) members seemed to know precisely what to expect.

Just five days earlier, Rajan Nanda (Nanda), Chairman of Escorts, the flagship of the Rs 35 billion Escorts group, had been to Japan to hold talks with the Yamaha Motor Company (Yamaha Motors) officials- Escorts' equal partner in the Indian motorcycle venture, Escorts Yamaha Motor Ltd (EYML).1 Before leaving, he had left instructions that a board meeting should be convened on April 24. An important announcement was to be made. At the meeting, Nanda informed the directors that, subject to the board's approval, Yamaha Motors could be given a majority stake in the joint venture company. The Japanese two-wheeler major had offered to buy an additional 24% stake in EYML from Escorts at Rs 200 per share. The deal would add Rs 2.3 billion to Escorts' coffers.

The announcement seemed to have been well accepted by the board, as there was not even a murmur of protest. For the Escorts board, such announcements were not new. In a little over a year, Escorts had offloaded substantial chunks of its equity in three joint ventures to its overseas partners.

It all started in 1999 when Escorts sold one-third of its shares in the construction equipment company Escorts JCB to JCB of the United Kingdom for Rs 490 billion. This brought its stake down from 60% to 40%. Next came the turn of Hughes Escorts Communication, a 51:49 joint venture between Hughes Communications of the United States and Escorts. In December 1999, Escorts offloaded 23% of its stake to Hughes for Rs 750 million. This brought its shareholding in the company to 26%. This was the second such exercise undertaken by Nanda since 1995 when he took over the reins of the company from his father, Har Prashad Nanda as chairman of the group. At that time, he had identified six areas of growth for Escorts-agri-business, construction equipment, two-wheelers, auto-components, telecom and finance.

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1] EYML was a 50:50 joint venture


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