The Maruti - Suzuki Conflict
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Case Details:
Case Code : BSTR029
Case Length : 11 Pages
Period : 1997-2002
Organization : Maruti Udyog Limited, Suzuki Motor Corporation
Pub Date : 2006
Teaching Note : Available
Countries : India
Industry : Automobile & Automotive
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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EXCERPTS
The Conflict
SMC had raised its stake in MUL to 40% in 1987 and to 50% subsequently in 1992. As MUL ceased to be a government unit, SMC began managing the company, with MD R.C. Bhargava (Bhargava) taking directions from Japan.
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As R.C. Bhargava reportedly shared a good rapport with the secretary and other higher officials at the Industry ministry, the relations between SMC and GoI remained cordial. The first signs of dispute surfaced in late 1993, when SMC proposed a Rs 2,200 crore expansion and modernization plan. The plan envisaged increasing the production by 1,00,000 vehicles to effectively meet the growing competition in the sector. The Heavy Industry secretary Ashok Chandra and the Finance secretary, Montek Singh Ahluwalia suggested SMC, in an informal discussion, to go in for a public issue to raise the finance for the expansion plan. Though initially SMC was reluctant to go for a public issue, Bhargava managed to persuade it in 1995 for the same. However, things changed with K.Karunakaran (Karunakaran) becoming the Union minister for Industries in 1995...
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The MUL Disinvestment Issue
In late 1999, following the recommendations of Disinvestment Commission, the GoI announced its decision to divest its stake in MUL. The GoI decision was a part of its industrial policy to privatize PSUs through gradual disinvestment or strategic sale. The first phase of MUL's disinvestment was to start with a Rs 400 crore
rights issue with renunciation option for the government, in December 2001.
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The second and final phase of MUL disinvestment was to be completed by the end of 2002, wherein GoI would divest its remaining equity holding in MUL through a public offering. The GoI was to sell its interest to the best bidder at a premium. However, subject to a clause in the MUL joint venture agreement, the GoI could not sell its stake without the written consent of SMC. This was expected to complicate the disvestment process of MUL. In January 2002, the GoI announced its willingness to renounce its portion of the rights in favour of SMC during the rights issue. The negotiations between the GoI and SMC to fix the renunciation premium and the control premium were scheduled to begin in January 2002. GoI was reportedly hopeful of getting a substantial 'control premium' for letting SMC get MUL's
full control... |
Exhibits
Exhibit I: Press Statements of the GoI and SMC During 1995-98
Exhibit II: Arbitration Petition
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