New Delhi: Swedish major AB Volvo and commercial vehicle producer Eicher Motors will frame up a joint venture deal with a total equity value of $768 million.

The new venture will concentrate on distributing commercial vehicles in India plus foreign markets, where the both partners have interests.

Both the companies have signed up the letter of intent (LoI) on Monday (10 Dec) for this purpose.

According to a release issued by Eicher, both the associates are also looking for the opportunity to enter into the financial services business through this venture.

Siddhartha Lal, managing director and CEO of Eicher Motors, said, “The partnership gives us the opportunity to share each other’s strengths. While we can offer our low-cost design, engineering capability, sales and service network in India, Volvo can offer the technology and access to global markets.”

After the validation of the new joint venture deal, Eicher Motor’s commercial vehicle business, together with related components including design and engineering service will be transferred to the new company.

Eicher would hold 54.4% stake in the new joint venture, whereas Volvo would hold the remaining 45.6%. The equity contribution made by Eicher stood at $418 million, and AB Volvo that has decided to invest $350 million in the venture, would also pick up an 8.1% stake in Eicher through promoters.

AB Volvo executive vice-president Jorma Halonen said, “Volvo, however, will keep its existing bus business in India a separate venture. “Our bus business in India is with a separate partner (Jaico) and this will continue to exist. The Bangalore facility will continue to produce Volvo buses and trucks, while Eicher will roll out products from its facility in Pithampur.”

He said Volvo could, in the future, look for manufacturing of components at Eicher's Pithampur plant. The joint venture will have close to 150 dealerships in India.

“India is the fourth largest commercial vehicle market globally and it is very important for us to have a substantial presence,” said Halonen.