IN a bout of shareholder activism not often seen in India, institutional investors have written a second letter to Maruti Suzuki India (MSIL) questioning the opacity of the decision to house the new manufacturing unit in a 100% subsidiary of Suzuki Motor Corporation (SMC). In a strongly-worded missive, a clutch of 16 investors on Tuesday asked the Maruti management to quash this “oppressive transaction” to save the company from becoming a “shell” entity. While the first letter was signed by seven institutional firms, the second one has the assent of the remaining nine.
Meanwhile, four independent directors have also raised concerns, saying they have only accorded an in-principle approval to the proposal and have sought legal opinion on issues relating to price fixation and royalty paid by the Gujarat plant to the SMC. The directors are understood to have expressed the view that they do not want any mark-up on the cars produced at the proposed Gujarat plant and want clarity on what kind of royalty would be paid by the plant to the SMC. They have expressed a view that it would be better that the consent of minority shareholders is sought over the proposal and it would be best if the company provides an exit route to them by buying back their shares. These issues will come up for discussion at the company’s board meeting on March 15.
“We reiterate that the only fair and sensible course of action for MSIL is to pursue the Gujarat project on its own,” the institutions wrote. Institutional investors together hold close to 14% in MSIL while the promoters have a majority 56.21% stake. Investors were concerned that the decision of MSIL’s board in January to let SMC set up the Gujarat project to expand production facilities, through a 100% subsidiary would convert Maruti into a shell company over time. “This clearly is not in the best interest of MSIL and its shareholders and is in fact significantly detrimental to them,” they observed.
Maruti had called the Gujarat plant proposal from Suzuki on January 28 an “attractive one”. On this, the institutions have asked: “Please let us know as to whether the board invited such a proposal or if the board merely accepted an unsolicited proposal made by Suzuki. Further, please confirm whether the veracity and validity of Suzuki’s proposal was benchmarked with either alternatives/market rates in order to arrive at a view that