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APRIL 8, 2007
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Mobile Security
Today, it is all about information and how the right information is sent to the right people at the right time and right place. Uncertainty about how to secure mobile phones in the face of increasing threats is slowing individual adoption of mobile applications. There are many facets of mobile security, including network intrusion, mobile viruses, spam and mobile phishing. Analysts expect big telecom companies to develop security solutions on various security platforms.

Rough Ride
These are competitive times for the Indian aviation industry. As salaries zoom, players are scrambling to find profits. Even the state-owned Indian is now seeking young airhostesses to take on the competition. It is planning to introduce a voluntary retirement scheme for airhostesses above 40 years. On an average, they draw a salary of Rs 5 lakh a year. The salaries of pilots, too, are soaring. According to industry estimates, the country needs over 3,000 pilots over the next five years.
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Business Today,  March 25, 2007

Bajaj vs Bajaj
Close to four years after entering into an understanding to split the empire, brothers Rahul and Shishir are nowhere close to reaching an agreement. The ownership battle rages on, and has only got uglier.
Rahul Bajaj
Chairman/ Bajaj Auto
Shishir Bajaj, Chairman & MD/ Bajaj Hindusthan
CEO/ Bajaj Hindusthan
He was the first to propose a demerger of Bajaj Auto way back in 2000
Last fortnight, at a scheduled board meeting of Bajaj Auto, one of the items that would have come up for discussion is the much-talked about demerger of the two-wheeler maker's cash and investments (including its stake in an insurance joint venture) into a separate company to be headed by Chairman Rahul Bajaj's younger son, Sanjiv. Elder son Rajiv, as per the proposal, will focus on what he does best: Producing and selling motorbikes, scooters and three-wheelers. According to some reports, the suggestion to de-merge Bajaj Auto emanated from foreign institutional investors (FIIs) in the company, who felt the value locked in its investment portfolio wasn't being captured in the share price. Those close to the Chairman suggest that the de-merger is his way of apportioning control of the company between his two sons (though not necessarily ownership).

There is, however, another story about how and when the idea of a de-merger was first mooted, and by whom. In 2000, almost six years before talk of carving up Bajaj Auto started making headlines, a 23-year-old nephew of Rahul Bajaj went up to the Chairman and requested him to take the financial services portfolio out of Bajaj Auto and hand it over to him. That tyro is of course Kushagra Bajaj, son of Shishir Bajaj who is brother of Rahul Bajaj. Both Rahul and Shishir are the single-largest shareholders in Bajaj Sevashram, the primary holding company of the group, each owning a quarter of its equity. Their cousins Shekhar, Madhur and Niraj hold 16.67 per cent each. Acccording to one family member, the Shishir camp justified its claim for the financial services business by saying Kushagra was second in line after Rajiv, as both of them were the eldest sons of the two single-largest shareholders. However, Kushagra's claim to the business was instantaneously discarded. All hell broke loose soon after, with Shishir demanding a separation from the group and Rahul reportedly attempting to throw him out-Shishir is the Chairman of Bajaj Sevashram, as also of Bachhraj & Co, and is also a Director on Jamnalal Sons. All these are group holding companies.


Each side publicly postures that the other is responsible for the termination of the settlement reached in June 2003.

The Rahul Bajaj group has filed a suit in the Bombay High Court against Shishir Bajaj and son Kushagra, alleging 'breach of trust' and claiming a compensation of Rs 600 crore. The suit is a result of Kushagra's refusal to acknowledge a verbal agreement reached between the two groups after two meetings held in 2005-06, and thereby refusing to acknowledge the memorandum of a settlement (MoU) arrived at in June 2003.

Rahul Bajaj has invented these oral agreements, and his side continues to scuttle the memorandum that was initially mutually agreed upon. As per the MoU arrived at in 2003, it was agreed that the Shishir side would transfer its Bajaj Auto shares to Rahul Bajaj group at an approximate average cost of Rs 465 (share prices range between Rs 415-465), and that Rahul would transfer all Bajaj Hindusthan (BHL) shares held by him and his side at Rs 67 per Rs 10 (Rs 6.7 per Re 1 share) share. Rahul had filed an affidavit with the Company Law Board on March 14, 2005, through Shekhar Bajaj, that he had accepted the settlement.

Rahul Bajaj group is not ready to transfer the 24.54 per cent stake in BHL held by holding company Bachhraj & Co to Shishir and his son Kushagra because of its improved performance and Rahul may be eyeing BHL to give it to one of his sons.

The minority shareholders in Bachhraj were worried that their interests would be hurt if a direct transfer of BHL shares was made, as that transaction would be way below market price. Also, if the minority shareholders of Bachhraj (22 per cent shareholders) made a claim on BHL based on their shareholding, it would have to be borne by the Rahul Bajaj side, and would be to the tune of Rs 131 crore at today's market prices. This situation could be avoided by forming a mirror company into which the Bajaj group's holdings in Bajaj Hindusthan would be put with the minority shareholders, continuing to reside in the original company.

The issue of minority share holders was a matter to be resolved by Rahul's group. As per the MoU of 2003, Rahul would have compensated the minority share holders with a differential price after transferring all shares of BHL (including those of the minority shareholders) to Shishir.

Post-MoU, both sides have resorted to modifying the settlement. After Bachhraj gave an assurance to the minority shareholders that their interests would be safeguarded, it was felt that a direct transfer of BHL shares from Bachhraj to Shishir wouldn't be possible and a new methodology needed to be found. The mirror-image formula was the best option.

Rahul wants to oust Shishir by appointing himself on the Board of Bajaj Sevashram and Sanjiv Bajaj on the board of Jamnalal Sons. Also, Bajaj Auto buying 1.9 per cent share of BHL via its treasury operations is an indicator of Rahul's devious intentions.

Again these companies are anyway controlled by the Rahul Bajaj group, along with Shekhar, Madhur and Niraj. Together they hold 75 per cent in Bajaj Sevashram, and buying 1.9 per cent more in BHL or inducting more directors in any of the holding companies is not significant in that light.

Today, even as Rahul Bajaj prepares to create a separate company for his son Sanjiv to control, the irony is that the patriarch of the group still hasn't been able to manage a settlement with brother Shishir, seven years after the latter demanded his pound of assets and almost four years after both the sides had agreed to do so via a memorandum of understanding (MoU). As per that settlement arrived at in mid-2003, the Shishir faction was to transfer all its Bajaj Auto shares to the Rahul camp (Rahul has all his cousins on his side) and in turn Rahul would transfer all Bajaj Hindusthan (BHL) shares held by his side to Shishir and his son. However, each side is now accusing the other of terminating the agreement, and charges of greed and mistrust are being traded. The Shishir faction claims that Rahul is dilly-dallying on handing over charge of BHL because he now realises how valuable it is-BHL's sales have increased 3.37 times and market cap has spurted 48 times since the MoU was inked. Rahul, for his part, has moved the Bombay High Court against Shishir and Kushagra, stating a "breach of trust" and claiming a compensation of Rs 600 crore. His lawyers claim that both sides had reached an oral agreement that deviated from the original, which the Shishir camp denies ever took place. In the meanwhile, the Rahul camp set the cat among the pigeons, with proposals of inducting Sanjiv Bajaj on the board of Jamnalal Bajaj Sons as an additional director and Sanjiv and Niraj as additional directors on Bajaj Sevashram, a group holding company. The Shishir camp clearly viewed this as an attempt to arm-wrestle it out of the holding companies; it approached the Company Law Board (CLB), which duly directed Bajaj Sevashram and Jamnalal Sons not to hold any board meeting for this purpose.

Managing Director/ Mukand
He is close to Rahul Bajaj and is a director on the boards of Bajaj Auto, Bajaj Allianz Insurance and Bajaj Hindusthan
That the latest chapter in this sordid story of a long overdue settlement dovetails disconcertingly with the de-merger proposal at the group's flagship is an irony that Kushagra loses little opportunity to latch on to. At a time when it's being speculated that Rajiv and Sanjiv can't see eye to eye, the de-merger is being seen as a way to get both brothers to go their own ways. Kushagra wonders why such a path wasn't created for him when he wanted to do the same. "From what I have read, Rahul Bajaj is saying that two people, in this case his two sons, Rajiv and Sanjiv Bajaj, are two different individuals and, therefore, bound to have differences. They are not "clones" of each other. Absolutely right. He could have said the same about us too. We were also good people. It is only that we could not get along with Rahul Bajaj because there were certain differences. Interestingly, Rahul Bajaj is now drawing a distinction between a de-merger and a split. If your sons split, it is a de-merger. On the other hand if your brother or your nephew wishes to separate, it is a split," is how Kushagra sees it. Although the de-merger and the settlement drama may be coinciding, the Rahul camp insists that it's in no way going to derail the breaking up of Bajaj Auto. "I am sorry but the family settlement will not happen the way Shishir and Kushagra want it," thunders Rahul Bajaj.

Much of Kushagra's angst is, of course, a result of not being able to gain control of a company he's nurtured over the past few years, and transformed from a non-entity into a behemoth to reckon with (albeit aided in no small measure by a generous up-cycle in the sugar sector). And he doesn't trust his uncle's motives. "It is clear that tau (uncle Rahul) wants control over BHL and wants to give the business to Sanjiv. The reason for that has been the good performance of BHL," says the enraged 30-year-old. "Our objective is clear. We want our share." Rahul rubbishes the allegation. "We already have ownership control, and a majority stake in bal (along with his cousins the Rahul faction holds three-fourths in the primary holding company). We have no desire to retain it and we want to give back the shares (of BHL) at the price agreed."


It's been over seven years since the germ of a settlement emerged.

2000: Shishir approaches his elder brother Rahul, saying he wants out of the group, along with his share of the assets. Kushagra asks for the financial services business of Bajaj Auto. Kushagra alleges Rahul attemped to throw his father out from the chairmanship of holding company Bajaj Sevashram.

March 2003: Shishir Bajaj group files petition with CLB, which asks the family to resolve the issue, orders status quo.

June 2003: S. Gurumurthy and D.S. Mehta chalk out the split formula; memorandum signed.

February 2004 : D.S. Mehta puts forth arbitration agreement that was honoured by both parties.

March 2005: Shekhar Bajaj (Rahul's cousin) puts out an affidavit to the CLB saying that all disputes and differences between Shishir Bajaj and Bajaj Sevashram and others have been "amicably resolved" by way of family settlement arrived in June 2003.

August 2006: Rahul Bajaj's lawyers say that the MoU needs to be altered/modified/magnified to protect the interests of the minority shareholders in Bachhraj & Co, one of the group's holding companies. To do so, a new methodology of transferring BHL shares from Bachhraj had to be worked out.

Sept 2006: Rahul Bajaj's lawyers claim that an oral pact was reached that deviated from the original agreement; Shishir Bajaj denies that any such pact was reached.

March 6, 2007: Jamnalal Sons proposes induction of Sanjiv Bajaj as an additional director; calls board meeting on March 14.

March 7, 2007: Shekhar Bajaj, chairman of Bajaj Sevashram, proposes induction of Sanjiv and Niraj Bajaj as additional directors; calls board meeting on March 13.

March 13: CLB directs that Bajaj Sevashram and Jamnalal Sons not to hold any board meeting till an application is disposed following a petition by Shishir. Petition says the induction of Niraj Bajaj and Sanjiv Bajaj on the board of these companies amounts to an indirect takeover of the company by Rahul Bajaj and other family members.

March 15: Media reports the fact that Rahul Bajaj moves the Bombay High Court against Shishir Bajaj and son Kushagra, stating 'breach of trust' and claiming a compensation of Rs 600 crore vide a suit. The petition was actually moved a few months ago.

But instead of that happening, new lines keep getting drawn in this protracted battle, which today is squarely between Kushagra, an MBA from Kellogg, and his Harvard-educated uncle (Shishir is maintaining a low profile, staying away from the media). Just why can't the family members conclude the settlement? According to Rahul, a final settlement in the dispute is being delayed by Kushagra; Shishir's son feels Rahul is violating some of the terms in the earlier-agreed-upon MoU and is preparing to take over Bajaj Hindusthan by boosting his stake in it (recently Bajaj Auto bought 1.9 per cent in BHL from the open market).

Executive Director/ Bajaj Auto
Kushagra alleges that Rahul Bajaj wants Sanjiv to head Bajaj Hindusthan
Vice Chairman & Director/ Bajaj Auto
Madhur Bajaj has a 16.67 per cent stake in Bajaj Sevashram
So who's right (if at all somebody is)? Let's hear Rahul's case first. According to him, the final settlement between the two factions was to be based on four factors-an MoU of the family settlement, family mediator D.S. Mehta's decision (of February 2004), and two meetings held between Niraj Bajaj and Kushagra Bajaj. In these two meetings some oral agreements were reached. Rahul says that it was in the last meeting, sometime around July 2005, that it was agreed upon to set up "a mirror image company of Bacchraj & Co into which BHL shares would be transferred." Bachhraj owns 24.54 per cent of BHL. This deviation from the original mou was necessary to protect the interest of the minority shareholders in Bacchraj, the Pitties, the Ruias and the Birlas who collectively hold 22 per cent. The Pitties had voiced their concern about their interests being hurt if BHL shares were directly transferred from Bacchraj to the Shishir camp at a measly price of Rs 6.70 per share which is the price arrived at in the proposed settlement.

Rahul Bajaj thus says that transferring shares of minority share holders to Shishir Bajaj may amount to a criminal offence in case any of them chooses to file a case. "So creating Bachhraj 2 (mirror company) will be the best solution," says Rahul Bajaj. "This will allow minority shareholders to hold 22 per cent in Bacchraj & Co as well as the mirror company and they can get a fair value for their stake in BHL by selling the shares at market value," he explains.

But this, the Shishir factions says, will mean that the Rahul Bajaj faction will not have to cough up the additional money to take care of any claims that arise from minority shareholders on account of compensation for differential pricing as was suggested by D.S. Mehta's decision in February 2004.

Further, Shishir's camp is also against the mirror formula as it would not only mean a dilution of stake for them (78 per cent instead of 100 per cent) but an additional liability in case the shareholders choose to move out in future. "There is no question of Rahul Bajaj and his three brothers going back on any settlement. The mirror image company was clearly agreed by both sides. Otherwise why would Shishir Bajaj and myself sign a letter on Bachhraj & Co's letterhead as Directors of the company mentioning to Pittie that nothing will be done against the interest of the shareholders. How can Bachhraj sell its Bajaj Hindusthan shares at Rs 6.70 per share when its market price today is Rs 170? It would be a criminal offence on the part of the Board of Directors to do this. Thus the solution of the mirror-image company which I repeat was agreed to by the other side and that is the only reason why Shishir Bajaj and myself could write such a letter on behalf of Bachhraj & Co, to the Pitties," says Niraj, advocating the stance of the Rahul faction.

Kushagra denies that these discussions ever took place. According to his legal representatives: "Our clients deny that any oral agreements were arrived at by Niraj Bajaj and Kushagra Bajaj as representatives of the Rahul Bajaj group and the Shishir Bajaj group respectively or at all or at two alleged meetings in July '05 and in February '06 or on any other date." It is also suggested that Rahul is not agreeing to the settlement because he wants to avoid the liability of the minority shareholders of Bachhraj & Co-estimated at about Rs 131 crore (as per current market price of Rs 179 per BHL share for approx 76,33,175 shares representing 22 per cent)-since D.S. Mehta's settlement formula stated that if any claim arises from them, it will have to be made good by the Rahul Bajaj group. Rahul apparently accepted this and filed an affidavit to that effect, through Shekhar Bajaj in March 2005, in the CLB accordingly. But the Rahul camp says the MoU and Mehta's formula weren't cast in stone and modifications and alterations by both sides were inevitable. Kushagra's problem with the mirror-image formula is that he may have to bear any future claims made by the minority shareholders-something he says is what Rahul had initially agreed to bear.

Chairman & MD/Bajaj Electricals
Shekhar Bajaj is one of the three cousins of Rahul Bajaj supporting him
It may seem to be a matter of just a few hundred crore that's delaying the split settlement. But experts point out there could be more than meets the eye. Does Rahul want to keep BHL for himself, as Kushagra suggests? Or does the Shishir camp hope to stall the de-merger at Bajaj Auto; is Kushagra still eyeing the financial services portfolio of Bajaj Auto? These are questions that are being debated in cocktail circles. The Rahul camp, for its part, doesn't think Shishir can put a spanner in the works of the de-merger. "No representative of Shishir camp is in anyway involved in the management of Bajaj Auto. Further, he and his family hold only 1.4 per cent shares of Bajaj Auto directly. The Shishir camp does not directly have 25 per cent ownership in the holding company. They hold only 2.5 per cent and the balance is in a corporate structure which we control. Further there are other holding companies of the Bajaj Group where their holding is much lower and also their personal holding is much lower than the 25 per cent they keep talking about. The demerger and its effect can only be decided by the Board of Bajaj Auto (and the proposal for demerger has not yet come up to the Board of Bajaj Auto)," clarifies Niraj. If that's true, the Shishir camp has the odds stacked against it. All eyes will now be on the CLB, which will hear out the two parties in May. Both sides are firmly sticking to their guns, but a CLB ruling may determine who blinks first and is ready to hammer out a compromise.