Cheques and balances by Sucheta Dalal

Cheques & Balances by Sucheta Dalal

November 26, 2000

Why Hamara Bajaj is better bet for Maruti Udyog

Rahul Bajaj has a formidable backer in his bid to acquire half of Maruti Udyog’s equity — it is the remote control of the Heavy Industries Minister Manohar Joshi. This gives him enormous clout in derailing the divestment of Maruti.

Unfortunately, Thackarey’s open support seems to taint Bajaj’s bid — after all one cannot forget how the BJP-Shiv Sena combine has messed up the power situation in Maharashtra. One does not know why Rahul Bajaj needs a political backer when he is hugely cash-rich, and says that he is willing to pay a reasonable amount of money for the stake — but that is between Bajaj and the Shiv Sena chief and should not affect competitive bidding.

Bajaj has not spelt out what is a reasonable price according to him, probably because various sections purportedly speaking for government have been putting out fanciful numbers for what the sale of Maruti is expected to fetch. These numbers which range from Rs 2,500 crore to Rs 5,000 crore often tend to tot up the government’s irrecoverable investment in Maruti over the years and the true cost of its real estate. On the other hand those who bid for the company have to look at it from the perspective of its chances of survival in an unprotected and extremely competitive market place and the investment required for continuous product upgradation simply to stay in the race. That is why competitive bidding is the only way to obtain a real value for a 50% stake which does not give management control to the investor.

Given Maruti’s peculiar equity distribution, it is logical that Suzuki or General Motors, which already holds a chunk of Suzuki equity would emerge the biggest bidder, after all they will be bidding for complete management control, either jointly or singly. It seems unlikely that any other investor would make more than a token exploratory bid. In this scenario we have Rahul Bajaj offering to make a reasonable bid for Maruti; the question is how to decide what is reasonable. On the one hand it is unfair to call for competitive bidding and not hand the company over to the highest bidder, simply because it would transfer ownership to foreign hands. On the other hand, selling the stake to Bajaj at a reasonable price would hasten the process and may find all round acceptance, but could fetch the government less that it would otherwise have collected for its stake.

To my mind, if hamara Bajaj is true to his word and willing to pay a fair price for Maruti — then one can only say ‘yehi hai right choice’ for several reasons. Firstly, Bajaj is already among the largest two-wheeler manufacturers in the world and has limited scope for expansion in this business. Secondly, he is sitting on a lot of cash in Bajaj Auto, which is probably better invested in Maruti than in ICICI (where he holds a three per cent stake) and a set of diverse companies. Thirdly, being in the auto business himself, he is the best position to keep a hawk-like eye on Suzuki and ensure that it does not rip off the Indian operations by forcing needless imports. He is bound to do this in order to ensure a good return on his investment. Fourthly, since Bajaj never showed the foresight to invest in appropriate technology in his two-wheeler business at the right time, so it makes perfect sense for him to get into the passenger car business as a joint owner rather to get control of the company. He has plenty to learn about the car business and Suzuki will ensure that he does not mess around with a good company. Then again Bajaj holds a few aces to top all of this. He is perceived as the informal leader of the Bombay Club and old economy to boot (since Information Technology millionaires usually own the most expensive set of wheel, it is unclear to me why the industry is seen as old economy, but it is – of the brick, mortar and steel variety) and letting him into Maruti demonstrates support for this sulking segment. Also, hamara Bajaj has impeccable nationalist credentials which will pass muster with the Swadeshi Jagran Manch or worse; and probably has the support of all the saffron affliates of the BJP.

Next, there is also the Sonia factor. Bajaj apparently had the foresight to have funded the Congress for years (by cheque, he said on a TV programme) and it would be difficult to imagine Sonia continuing her mindless objection to disinvestment if Bajaj is the beneficiary. The most important factor in the divestment process is Maruti’s future. It is imperative that all the aces in Bajaj’s pack do not short-change the exchequer, but it is a fact that government cannot afford to vacillate over Maruti’s future anymore. Completing the divestment of Maruti in a universally acceptable manner will re-charge the government’s disinvestment programme which is today bogged down by political obstruction. Lastly, it must be remembered that government alone cannot decide who to sell its stake to. Its JV agreement requires it to obtain written consent from Suzuki before transferring its shares. This means that instead of dithering over a decision the government should be keep out the political supporters and persuade Bajaj to pay the appropriate price for Maruti. At the same time it should work at convincing Suzuki that letting in hamara Bajaj may be the quickest way of getting the company back into zip drive and staying ahead of the competition.