Hero Cycles buys equity stake in MIFA of Germany

OPM Global B.V., a subsidiary of Hero Cycles Ltd, the world’s largest cycle manufacturer by volume, has acquired a significant equity stake in Germany’s largest manufacturer of cycles Mitteldeutsche Fahrradwerke AG (MIFA) for 15 million Euros (approximately Rs 119.5 crore). MIFA manufactures a comprehensive range of bicycle models from normal cycles to electric ones at its single integrated manufacturing plant in Sangerhausen in Germany.

MIFA is listed on the Frankfurt Stock Exchange and its annual sales figures are in excess of a 100 million Euros (Rs. 7, 981 million or Rs 798.1 crore).

MIFA had earlier invested large amounts of borrowed capital (debt) in new technology to develop high-end cycles which is one of the primary reasons for its present condition.

Hero Cycles began its journey from Ludhiana, Punjab and later partnered with Honda to become the largest two-wheeler manufacturer in the country.

The Hero Cycles and MIFA deal comes at a time where debt repayment was becoming an issue for the German cycle manufacturer. Now they look to turn around the company in a span of 18 months. The Board of directors will soon be re-organised and in due course of time a plan will be devised to improve the present condition of MIFA with the help and participation of their new found Indian leadership.

The German company had a few years back acquired Berlin-based Grace, an e-bike manufacturer, and Bavaria-based high-end bicycle forging company Steppenwolf. This acquisition will give Hero Cycles access to the critical Electronic Drive Unit (EDU) technology, used in e-bikes.

The company will be spending an additional 4 million Euros (Rs 31.8 crore) as capital expenses in restructuring the acquired company.

According to a formal announcement made by Mifa, it noted that OPM Global B.V had entered into a general commitment, as part of an investment agreement to underwrite capital increases in cash in the amount of Euro 15 million from MIFA's existing authorised capital and thus invest up to EUR 15 million of equity into MIFA. “The cash capital increases shall comprise a 10pc capital increase with subscription rights being excluded and a subsequent rights issue with a total number of 4.9 million new shares to be issued. OPM Global B.V. has undertaken to subscribe all such shares which together with additional existing shares to be transferred from certain existing shareholders would result in an overall participation of the investor of up to 47pc”, the note read.

In a separate note posted on August 22, 2014 on the Mifa website, Hans-Peter Barth, CEO of MIFA said, "The considerable strengthening of MIFA's equity base also sends an important signal to our employees and business partners. With HERO, we have gained a strategic investor that believes in MIFA's future, and is also prepared to make a major financial investment in ensuring that our company returns to full health. We are optimistic that, with HERO's investment, not only have we placed an important building block for our financial reorganisation, but we have also found a valuable partner for the future structuring of our operating business."

Dr. Stefan Weniger, Chief Recovery Officer (CRO) at MIFA, regards the basic agreement as a decisive step towards the company's further restoration to financial health: "Following intensive and constructive negotiations, the agreement that has been reached today sends more than a positive signal for all involved. In particular, the reorganisation structure that has now been agreed shows how determined the negotiating partners have been to find a solution which is compatible for all sides, and which forms the basis for MIFA's long-term future. We have now found such a solution. Thus, the reorganisation of MIFA has reached the home straight."

As per another press note issue as early as May 19, 2014, it noted that : Investment agreement with Indian bike manufacturer HERO concluded, equity investment pursuant to capital increases from authorised capital

THE FULL RELEASE—

Sangerhausen, 19 May 2014 - MIFA Mitteldeutsche Fahrradwerke AG ("MIFA", German security identification number: A0B95Y, ISIN: DE000A0B95Y8) announces that the company OPM Global B.V., a subsidiary of Hero Cycles Ltd. ("HERO"), has entered into a general commitment today as part of an investment agreement to underwrite capital increases in cash in the amount of EUR 15 million from MIFA's existing authorised capital and thus invest up to EUR 15 million of equity into MIFA. The cash capital increases shall comprise a 10% capital increase with subscription rights being excluded and a subsequent rights issue with a total number of 4.9 million new shares to be issued. OPM Global B.V. has undertaken to subscribe all such shares which together with additional existing shares to be transferred from certain existing shareholders would result in an overall participation of the investor of up to 47 %. The investment commitment by OPM Global B.V. entails significant financial contributions of MIFA's financing partners and is subject to various conditions precedent, especially to the condition of a haircut in the amount of EUR 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 The German Securities Acquisition and Takeover Act.