European automobile major Volvo is in advanced negotiations to acquire a majority stake in Eicher Motors. According to highly placed sources, Volvo has emerged as the front-runner after inspecting the Indian truck makers books, pipping DaimlerChrysler.

Sources close to the deal said Volvo had offered Rs 675 an Eicher share against Daimler's Rs 500. In fact, the deal price is expected to be above Volvo's offer, translating into a market capitalisation of around Rs 2,000 crore for Eicher Motors. This is way above Eicher's current market price of Rs 428 a share and market capitalisation of Rs 1,200 crore.

Sources said Volvo would acquire the majority stake in the company either from the promoters or through fresh issue of shares trough the preferential route. The existing promoters headed by Siddhartha Vikram Lal will continue to own an "extreme minority" stake in Eicher Motors, which could be less than 26 per cent, the sources added.

Admitting that Eicher Motors was considering a strategic alliance, company executives refused to comment on the deal.

"Eicher Motors is focused on becoming a full-range commercial vehicle player. In our endeavour to continuously strengthen our presence across the Indian commercial vehicle landscape, we are considering strategic alliances. However, due to professional courtesies accorded in any business talks, we will not be able to offer any particular comment at this stage," an Eicher Motors executive said.

The promoters currently hold 61.76% in the company. This include a 3.56% stake indirectly owned by DaimlerChrysler.

A key reason for such a high valuation is that global truck makers are looking at India as a significant growth market.

Volvo already has a production facility in India for upper-end commercial vehicles near Bangalore. Since Eicher Motors has a predominantly northern footprint, it gives Volvo a strategic fit, according to sources close to the deal.