Wish you a happy New Year,? said Rahul Bajaj, surprisingly warm and boisterous, when contacted over the telephone on January 1. Usually reticent about discussing family issues where he?d been pictured as the one unwilling to accede to his younger brother Shishir?s demands, the very first day of this year was particularly special for him.
The Bajaj Group?now minus Shishir and family?had sent across a media statement that evening, saying cousins Rahul, Shekhar, Madhur and Niraj Bajaj had reached an ?amicable settlement? with the Shishir Bajaj Group. Just a few days before, Rahul was unwilling to talk. Not unexpected since the settlement was the second major attempt after talks failed in 2003, and no one wanted to take chances. But on New Year day, it was time to celebrate, keeping aside six years of hostility. ?What could be a better way to start the year? We?re friends now,? Rahul continued.
FE spoke to the ?Shishir Bajaj Group? (SKB Group), too. ?We would like to confirm that the settlement has been signed and implemented,? was all what Kushagra Nayan Bajaj, Shishir?s son said. Kushagra had staked claim to his family?s share of ownership in part of the undivided group business.
These developments could well mark the birth of a new era of harmony in the Bajaj family. In late December 2008, following the announcement of an unwinding of crossholdings by Rahul and Shishir to facilitate the settlement of the family dispute raging since 2002, the two undertook a ?zero-value? share swap. In what would give control of India?s largest sugar company Bajaj Hindusthan to Shishir, Rahul transferred his group?s entire 29.62% stake in that company to Shishir. Shishir reciprocated by selling his 25% holding in group investment firm Bajaj Sevashram.
?The Bajaj Group shareholding in Bajaj Hindusthan Ltd and Bajaj Consumer Care is now with the SKB Group,? the January 1 statement said. ?The promoter shareholding of all other companies in the Bajaj Group, including that held by the SKB Group, is now with the four brothers of the Bajaj Group. This includes companies like Bajaj Auto Ltd, Bajaj Electricals Ltd, Mukand Ltd, Bajaj FinServ Ltd, Bajaj Holding & Investments Ltd, Hercules Hoist Ltd etc.?
This could be curtains to a much publicised family dispute, which was only overshadowed by the discord between the two Ambani brothers?Mukesh and Anil?over ownership of the Reliance Group companies. While the Reliance dispute was settled in June 2005, the Bajaj issue continued to simmer. Adding fuel to fire was the aggression of a younger Bajaj?Kushagra?the present joint managing director and CEO of Bajaj Hindusthan. The raging family spat even gutted the truce efforts mediated by S Gurumurthy, a mediator of many a business family issues, in 2003.
The seeds of discord among the otherwise peace-loving and respected family (patriarch industrialist Jamnalal Bajaj, Rahul?s grandfather, was also a freedom fighter and close associate and follower of Mahatma Gandhi), took roots as the family grew from the second to the third generation, with existing assets split among more family members. Jamnalal?s two sons. Ramkrishna and Kamalnayan held 50% each in Bajaj Sevashram, a group holding company. When it came to the third generation, Rahul and Shishir, Kamalnayan?s sons, got 25% in Bajaj Sevashram, while Shekhar, Madhur and Niraj got 16.67% each.
The responsibilities for group firms were divided in an informal manner among the cousins?Rahul Bajaj managing Bajaj Auto, with Madhur also playing a role, Shishir running Bajaj Hindusthan, Shekhar, Bajaj Electricals, and Niraj, Mukand Steel. Things looked picture perfect until their children, Shishir?s son Kushagra in particular, wanted clarity in the holdings and responsibilities, and for himself, a role in the financial services business of Bajaj Auto.
The initial rumblings in the family started in 2000, when Kushagra is said to have asked for responsibilities in Bajaj Auto?s financial services business. According to some reports, this was not agreeable to Rahul Bajaj. Shishir then asked for separation.
In 2002, Shishir alleged Rahul Bajaj of trying to oust him from the chairmanship of Bajaj Sevashram. The Shishir Bajaj group then approached the Company Law Board (CLB) for redressal in 2003. The CLB suggested that both the sides should reach an amicable solution.
Following it, in 2003, an MoU was signed between the five cousins, and subsequently, a settlement was ready, which also included a compensation order. Accordingly, the Shishir Bajaj group was to be given a cash compensation equivalent to his share in Bajaj Sevashram, which was estimated to be around Rs 500 crore then. This figure is said to have been re-negotiated and something to the order of Rs 170 crore was decided to be given to Shishir.
But the settlement had loopholes, and did not give Shishir the entire control of Bajaj Hindusthan. Although the group investment firm Bajaj Sevashram did not have any shares in Bajaj Hindusthan, two other holding companies, Jamnalal Sons and Bacchraj & Co, held the group?s 28% in the sugar company. In order to protect the interest of minority shareholders, it was proposed that a mirror company would be formed for Bacchraj & Co and the shares of Bajaj Hindusthan would be shifted there. The new firm would hold 24.54% of Bajaj Hindusthan.
It was then Kushagra?s turn to voice his concern over the settlement. He was in favour of 100% ownership of shares in Bajaj Hindusthan, which included the 25% shares owned by Bacchraj & Co. ?The original agreement between us was that 100% of Bachhraj?s holding in Bajaj Hindusthan would finally be ours,? he was quoted in media reports. He said that the Rahul Bajaj faction should ensure that the non-promoters are adequately compensated and their stake transferred to the Shishir-Kushagra faction.
As per the original family document agreement, the Rahul faction would sell its shares in Bajaj Hindusthan, held through Bacchraj, for Rs 6.7 per share. But the market price of Bajaj Hindusthan rose subsequently?shares of the company reached a high of Rs 399.50 on the Bombay Stock Exchange on January 9, 2008 although as on January 1, 2009, it stood way below at Rs 74.50, which made non-family promoters resent the settlement.
Kushagra wanted the Rahul faction to pay the entire compensation to minority shareholders. The Pitties, who were minority shareholders, had already said that they would have to be compensated since the settlement would not favour them. But the Rahul faction put the ball back in Shishir?s court, saying that buying out the minority shareholders would be Shishir?s business.
Kushagra also feared that in case the demerger of Bajaj Auto did not happen, Rahul would give Bajaj Hindusthan to his younger son Sanjiv. But Bajaj Auto?s various businesses were demerged into two newly incorporated subsidiaries in May 2007?Bajaj Holdings and Investment (BHIL) and Bajaj Finserv (BFL). Bajaj Holdings and Investment became the new auto company, renamed Bajaj Auto. The existing Bajaj Auto was renamed Bajaj Holdings and Investment, acting as the primary investment company. And Rahul?s elder son Rajiv Bajaj continued to be MD and CEO of Bajaj Auto. Sanjiv would be MD of Bajaj Finserv.
Months later, the new settlement announced in December 2008 saw a toning down of stance from the Rahul Bajaj camp when he decided to acquire from family members and group companies?Bachhraj & Co and Jamnalal Sons. These he would then transfer to Shishir in a zero-value deal, resulting in control of Bajaj Hindusthan to younger brother Shishir.
Rahul Bajaj would acquire over 4.1 crore shares amounting to 29.2 % stake in the sugar major by way of inter-se-transfer of shares among the promoters through market transactions. These shares would be acquired at the market price as on December 30. The acquired shares, along with 0.21 % already held by Rahul Bajaj as well as the holdings of six other family members amounting to 29.62 %, would then be transferred in favour of Shishir. After the transfer of shares, Shishir will have 32.47 % stake in Bajaj Hindusthan.
Why has the settlement come up at this time? Has it anything to do with the downturn that most Indian companies are facing? According to Girish Solanki, an analyst with Angel Broking, ?The settlement bodes well for the family. As the new generation keeps coming in, the family stakes get broken up, and it?s better to have a lot of clarity.? However, this is also the time when valuations of most companies have dropped owing to the slowdown and the fall in the capital markets. Bajaj Auto has been seeing falling sales and reported a 33% decline in two-wheeler sales during December 2008 at 119,215 units against 177,249 units in the same month previous year. Its motorcycle sales also declined by 33% at 118,510 units against 176,441 units in December 2007 as high interest on loans and the economic slowdown forced many to delay two-wheeler buys.
Kushagra, on the other hand, was preparing for an upcycle in the sugar business, which, according to analysts, will help him rake in Rs 300 crore to Rs 400 crore in profits. ?Kushagra is on an aggressive journey. There?s no stopping him. The Rahul faction has understood this, and better sense has prevailed,? Solanki added.
On December 30, about 39.9 million shares of Bajaj Hindusthan Ltd representing 28.2% of its outstanding equity changed hands in two block deals on the BSE. Shishir Bajaj, in turn, sold his 25% holding in Bajaj Sevashram, of which he was chairman, to Rahul Bajaj in an off-market deal. With this he has exited all group investment firms that held stakes in different companies of the Rahul Bajaj faction.
With the settlement, a lot of credibility will be added to the businesses of the group, analysts said. It?s not uncommon that squabbles arise in family run businesses. But for those who bury the hatchet by clearly spelling out ownership and assigning responsibilities, there is a prospect of better and bolder growth. The Bajajs are on the threshold of such an opportunity.
