Auto giant Bajaj Auto's board on Thursday approved a demerger scheme, splitting group into three separate entities with the creation of two new companies.
Under the proposed scheme, effective from March 31, Bajaj Auto Ltd's various businesses including auto manufacturing and other strategic businesses such as wind energy, insurance and financial services, would be demerged into two newly incorporated subsidiaries -- Bajaj Holdings and Investment Ltd (BHIL) and Bajaj Finserv Ltd (BFL).
The manufacturing business would vest in BHIL and other strategic businesses would vest in BFL, the company informed the Bombay Stock Exchange.
After the demerger, for each share of Bajaj Auto, the shareholders would continue to hold one share of the company with face value of Rs 10 and would also be allotted one BHIL share of Rs 10 face value and one BFL share of Rs 5 face value.
As part of the restructuring, BHIL would be renamed 'Bajaj Auto Ltd' and the existing Bajaj Auto Ltd would be renamed as 'Bajaj Holdings and Investment Ltd'.
The scheme, approved by the board, is subject to approvals as may be required including that of the stock exchanges, Bombay High Court, and shareholders of the company.
Considering the growth opportunities in the auto, wind energy, insurance and finance sectors, the board has considered it timely and appropriate to demerge theseactivities into separate entities, each of which can focus on these core businesses and strengthen competencies, the company said.
All shareholders in existing BAL on the record date would become shareholders in each of the new companies and would be issued shares of the two new companies in the ratio 1:1.
After the issue of new shares, the existing shareholders of BAL would hold about 70 per cent shares in the new companies in the same ratio as their current holding, with the remaining about 30 per cent being held by Bajaj Holdings and Investment Ltd.
The transaction structure will also enable the new companies to tap into the cash pool of BHIL to support their future growth initiatives even while enabling BHIL to participate in the growth of the auto business and the financial services business.
The provisions of the scheme would be applicable and come into operation from closing hours of March 31. The demerger process, which is subject to statutory and regulatory procedures, is expected to be completed by end of calendar year 2007.
The demerger would create three separate entities with management focus on clearly laid out objectives, pursuant to which the auto company would focus on auto business, the wind power and financial services company would focus on wind-energy
The two new companies would be able to tap (on an arm's length basis) into the cash pool of the investment company to support future growth initiatives, if required.
The demerger will enable the investors to hold separate focused stocks, it said, adding that the demerger would facilitate more transparent benchmarking of the companies with its peers in their respective industries.
BAL has subscribed to BHIL's 43.5 million shares of Rs 10 each for Rs 43.5 crore (Rs 435 million), and BFL's 43.5 million shares of Rs 5 each for Rs 21.75 crore (217.5 million), the company said.
The auto business of the company along with all assets and liabilities, including investments in PT Bajaj Auto Indonesia and in a few vendor companies, would be transferred to BHIL. In addition a total of Rs 1,500 crore (Rs 15 billion) in cash and cash equivalents would be transferred to BHIL.
The wind power project, investments in the insurance companies -- BALICL, BAGICL and investment in the consumer finance company BAFL along with relevant assets and liabilities would be transferred to BFL. In addition a total of Rs 800 crore (Rs 8 billion) in cash and cash equivalents would be transferred to BFL.
The remaining assets and liabilities including investments in group companies and balance cash and cash equivalents would be retained in the existing BAL.
As part of the scheme, Bajaj Holdings and Investment Ltd (which would be the new auto company) would be renamed as Bajaj Auto Ltd and the existing Bajaj Auto Ltd would be renamed as Bajaj Holdings and Investment Ltd, (which would act as the primary investment company).
JM Morgan Stanley Pvt Ltd and J Sagar & Associates are acting as advisors for the restructuring.
