Partial Partition sans Partiality?

A comment on the TVS family arrangement!

Yet another page un folds in the family restructuring of the TVS group. This time it is the one coming under the fold of Venu Srinivasan (VS).

  The larger group achieved a major split in a spirit of harmony and co-existence about three years back. Since then, the companies that accrued to the family of VS have seen a round of composite restructuring, which was commented in this column earlier.

Just late last evening, the three listed companies belonging to this group, TVS Motors Ltd, TVS Holdings Ltd and Sundaram-Clayton Ltd communicated to the stock exchanges the gist of a family arrangement between the members of the VS’ family reached a day earlier.

  The part that covers the nature of the arrangement informed to the exchanges is reproduced here-

  The parties to the agreement are as below, being the immediate family of VS-

In all the three disclosures made by the respective listed entities it is affirmed that the said entities’ business would in no way be affected by the agreement reached-

Is the assumption that the companies which have public shareholders are untouched by this arrangement, valid? Given that the family has a controlling stake in all the ventures which are listed, its personal arrangement will echo in the way the companies can expand and access new ventures. The regulator should look at this closely and provide due guidance in the matter.

  The agreement can be interpreted as an in-principle division of the family business ventures between the two scions of the family, Sudarshan Venu and Dr. Lakshmi Venu.

  While the arrangement is silent, it is possible Lakshmi Venu may step down at some stage from the boards of TVS Holdings and TVS Motor which move to Sudarshan Venu.

  But the agreement also brings into its scope the tractors and farm equipment business that is not part of the traditional array of TVS’ business, but a business that is part of the Amalgamation group.

   The Amalgamation group is predominantly privately held and the tractor and farm equipment business constitute the biggest chunk in value terms of that group.

  Little data exists that can be readily accessed with regard to the organization’s structure. But sometime ago, the NCLAT had passed an order in a family dispute within that group which brought out some details of the business run by that group.

  Clearly, tractors and farm equipment business constituted the largest by turnover and quantum of profits. The said NCLAT order was discussed in an article published in this column.

  The current status of that dispute is not known but it can be guessed that the hold of Mrs. Mallika Srinivasan on the said businesses remains undisturbed and thereby the succession of the daughter, Lakshmi Venu, will be unhindered.

  While tractor and its adjunct businesses may be smaller than the two-wheeler business, the difference may not be too significant and the two siblings will control business of a like size in the years to come.

  It is to be expected that the shareholding control will ultimately follow the way the businesses are intended to be split.

  It is in this context the previous leg of restructuring carried out which split the two-wheeler and its cluster of finance and real estate business, and the aluminum and magnesium diecasting and machine casting becomes salient.

  Sundaram-Clayton Ltd which was newly constituted in the demerger took over the aluminum and magnesium diecasting and machine casting.

  TVS Holdings Ltd which became a pureplay holding company presently holds the two-wheeler and its adjunct business, finance and real estate going to the control of Sudarshan Venu.

  Predominant shares of the companies, Sundaram-Clayton and TVS Holdings are presently held by a family trust giving the flexibility to switch it any which way among the family members.

  VS had borrowed, based on exchange filings in the past, to make the family settlement among the broader TVS family members. The shares pledged to enable the loan continues till date.

  TVS Motor has announced a bonus preference share issue of about Rs2000cr to be implemented by a scheme to be approved by NCLT. 50% of the amount will accrue to the holding company TVS Holdings based on the shareholding pattern.

  As the VS family holds almost 75% of TVS Holdings, it will ultimately net about Rs750cr less tax leakage along the way. The public shareholder of both TVS Motor and TVS Holdings will also get their share of the money flowing through this scheme.

  This is a convoluted scheme based on the premise of some tax efficiency which is not free from doubt as commented earlier in this column. The simpler approach would have been to give dividend of a like amount(special/extraordinary) which can flow seamlessly and be taxed just once at the final point.

  Also, the structure of TVS Holdings serves little useful purpose and affects the interest of the minority shareholders of TVS Motor, again discussed previously.

  Just as the scions are being treated fairly in the division, the public shareholders of TVS Holdings may be distributed their pro rata interest in TVS Motor!!  

  Does the arrangement set the tone for other similarly structured families within the larger TVS group and outside, to consider the family transition?

Time alone will give the answer!