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Rahul Bajaj
Chairman/ Bajaj Auto
Shishir Bajaj, Chairman &
MD/ Bajaj Hindusthan |
KUSHAGRA BAJAJ
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.
| TRADING CHARGES |
| Each side publicly
postures that the other is responsible for the termination
of the settlement reached in June 2003.
ALLEGATION BY THE RAHUL CAMP:
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.
DEFENCE OF THE SHISHIR CAMP:
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.
ALLEGATION BY THE SHISHIR CAMP:
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.
DEFENCE OF THE RAHUL CAMP:
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.
ALLEGATION BY THE SHISHIR CAMP:
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.
DEFENCE OF THE RAHUL CAMP:
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.
ALLEGATION BY THE SHISHIR CAMP:
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.
DEFENCE OF THE RAHUL CAMP:
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.
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NIRAJ BAJAJ
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."
| COUNTDOWN TO
A SPLIT THAT NEVER HAPPENED |
| 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).
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SANJIV BAJAJ
Executive Director/ Bajaj Auto
Kushagra alleges that Rahul Bajaj wants Sanjiv to head Bajaj
Hindusthan |
MADHUR BAJAJ
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.
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SHEKHAR BAJAJ
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.
-additional reporting by
Krishna Gopalan
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