OP Munjal group firm Hero Cycles Ltd is investing €15 million ($19.8 million) in loss-making German bicycle firm MIFA Mitteldeutsche Fahrradwerke AG (MIFA), the company said in a statement. The investment is part of a multi-tier deal which would give Hero Cycles around 47 per cent in the Frankfurt Stock Exchange-listed MIFA.
The investment shall comprise a stake purchase and a subsequent rights issue comprising 4.9 million new shares to be issued. OPM Global B.V, an arm of Hero Cycles, will subscribe all such shares which together with additional existing shares to be transferred from certain existing shareholders would result in an overall holding of up to 47 per cent.
The deal entails significant financial contributions of MIFA's financing partners and is subject to various conditions precedent, especially a haircut amounting to €15-20 million of the bondholders as well as an exemption from the German Financial Supervisory Authority (BaFin) from the obligation to make a public takeover offer under the German Securities Acquisition and Takeover Act.
MIFA manufactures foldable bicycles, sports vehicles, electric bikes, etc and markets its products under Mifa, Germatec, Steppenwolf and Grace brands, as well as third-party brands (white labels). It clocked revenues of around €111.3 million for 2012 and has been selling over 0.5 million units a year. This makes it much smaller compared with Hero Cycles.
Most of MIFA's products are sold in Germany. Outside Germany, MIFA sells its bicycles primarily in Western and Northern Europe, particularly in France, Austria and the Benelux countries.
Two years ago MIFA acquired control over premium electric bike manufacturer Grace GmbH & Co, which Hero Cycles would look to leverage in terms of boosting product portfolio in India.
MIFA's operations, including production facilities, administration and logistics, are organised centrally from the company's domicile in Sangerhausen (Saxony-Anhalt). It also maintains factory outlets in Sangerhausen as well as Berlin. Administration and development activities for electric bikes produced by Grace are based in Berlin. The firm employs around 1,000 people. It went public in May 2004.
For Hero Cycles, this would be the first big move overseas.
It comes a year after BM Munjal group’s flagship Hero MotoCorp struck a similar inorganic expansion move by picking a stake in American sports motorcycle maker Erik Buell Racing.
Originally part of same Hero Group, though run separately, the Munjal family’s business was formally split three years ago which made Hero Cycles totally separate from Hero MotoCorp (formerly Hero Honda).
(Edited by Joby Puthuparampil Johnson)