Case Study

Topics: Joint venture, Yamaha Motor Company, Valentino Rossi Pages: 5 (1527 words) Published: July 17, 2013
The case traces the various developments from the time the joint venture took place till the breakup in 2000. In 1995, Escorts and Yamaha Motors formed a 50:50 joint venture (EYML). From 1995 to early 2000, EYML took several steps to become the number one player in India's two-wheeler market. However, in mid-2000, Escorts divested 24% equity to Yamaha Motors and as a result, Yamaha Motors became a majority stakeholder in the venture (74:26). In May 2001, Escorts sold its remaining 26% equity, thus, exiting from the joint venture. The case is intended for MBA/PGDBM level students as part of the Business Environment curriculum. From the case students are expected to understand why Escorts pulled out of the joint venture and how this move is going to affect Yamaha Motors. Students can also discuss Escorts new business initiatives and examine how the company is placed to succeed in new economy businesses. This case will also enable students to understand the structural changes in the two wheeler market in India. -------------------------------------------------

» Diversification into unrelated business by one of the partners, Problems in the Joint venture due to the external environment -------------------------------------------------
 | Page No.|
Introduction| 1|
Two Wheeler Industry in India| 1|
Escorts, Yamaha Tie the Knot| 3|
The Honeymoon| 3|
The Honeymoon is Over| 4|
The Divorce| 5|
The Road Ahead| 5|
2000, 1995, Escorts, Yamaha Motors, 50:50, EYML, 24%, equity, 74:26, May 2001,26%, Business Environment

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...
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