Companies & Sectors
Maruti Suzuki: An open letter to the shareholders from IiAS

IiAS, a proxy advisory service says that if the Gujarat plant transfer to Suzuki is approved, Maruti will lose all control over its own destiny, and its shareholders will always remain subservient to the interest of parent Suzuki’s shareholders

 

Proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS) has asked shareholders of Maruti Suzuki India Ltd to vote against a proposal to allow the company’s parent Suzuki Motor Corp of Japan to own its upcoming plant in Gujarat. 

 
“Allowing Suzuki to own the Gujarat plant and its manufacturing has implications that extend beyond commercial arrangements. Suzuki is currently dependent on Maruti, but allowing Suzuki to own the Gujarat plant will shift the balance of power in favour of Suzuki. If the transaction is approved, Maruti will lose all control over its own destiny, and Maruti’s shareholders will always remain subservient to the interest of Suzuki’s shareholders. Equally important are the implications of such transactions on other family-run and MNCs in India – they too may begin manufacturing in unlisted companies and allow the listed company to merely trade,” IiAS said in the open letter.
 
Last year, Bengaluru-based InGovern Research Services also had advised shareholders of Maruti Suzuki, to vote against the country’s largest carmaker's proposal to enter into contractual arrangements for expansion with a 100% subsidiary of Suzuki, the dominant shareholder in the company.
 
Here is the open letter from IiAS to shareholders of Maruti Suzuki…
 
Dear Shareholder:
For a company with as strong a manufacturing track record as Maruti has, to willingly cede ground to another manufacturer should be anathema - yet this is just what your company is proposing, by allowing Suzuki to own the Gujarat plant. Make no mistake, this vote is about the shifting power equation and whether shareholders will allow a manufacturer to continue to ‘manufacture and sell’ or let it shift gears, and ‘buy to sell.’ To put it simply, you - the shareholders of Maruti - need to decide whether Maruti will continue to remain a manufacturer of cars or will it become a glorified distributor.
 
Equally important are the implications of this vote on family run firms and on other MNC’s. If shareholders agree to Suzuki doing owning the Gujarat plant, why should they not agree to the Tata’s, Munjal’s, Mahindra’s or the Bajaj families proposing the same?  Will Glaxo or Nestlé or Holcim now set up fully owned subsidiaries and have their Indian arm only market the products? If so, it will spell doom for the Indian equity markets.
 
About Maruti and this vote
Your company, Maruti currently has two facilities - in Gurgaon and in Manesar, which have a combined capacity to manufacture 1.55 million cars. Your company planned to expand its capacities by setting up a third plant in Gujarat (1,500,000 cars annually – to be set up in a phased manner). 
 
However, in early 2014, Maruti took us all by surprise when it announced that, Suzuki (and not Maruti) will set up and own the Gujarat plant. Suzuki will manufacture the cars in Gujarat that will be purchased by Maruti at cost and be sold under the Maruti product portfolio.  
 
In order to execute this arrangement, your company now proposes to enter into two related party transaction contracts with Suzuki Motor Gujarat Pvt Ltd (SMGPL), a wholly-owned subsidiary of Suzuki Motor Corp (Suzuki), and as required by the Companies Act, 2013, is seeking your approval for the following  transactions:
 
I. Contract Manufacturing Agreement for manufacture and supply of vehicles for an initial period of 15 years. All goods will be sold at cost by SMGPL to Maruti with no profit or loss for SMGPL.
II. Lease Deed for developing the plant on land owned by Maruti. As per the deed, SMGPL will pay Maruti an annual aggregate rental of Rs49.9 million for the land an initial period of 15 years. 
 
IiAS recommends that you vote AGAINST the resolution. Voting AGAINST this resolution means that Maruti will own the Gujarat plant and not Suzuki – it will not result in any stoppage of capacity creation at the Gujarat plant.
 
IiAS has had reservations about this deal since it was first announced in January 2014 and continues to believe that the deal is not in Maruti’s long-term interest. Our main contentions are in our open letter below to shareholders.  
 

 

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COMMENTS

GANESHKUMAR AP

1 year ago

Benefits of scale, margins will be lost by the Maruti.

Narendra Doshi

1 year ago

Can you also say the other side of the coin story to evaluate your proposal, properly.

Unending tests of Maggi cannot go on: Apex consumer court
The apex consumer court on Tuesday said "unending testing of Maggi samples cannot go on", following the Rs.640-crore class action suit filed by the government against Nestle India.
 
A bench of the National Consumer Disputes Redressal Commission (NCDRC), comprising Justice V.K. Jain and Justice B.C. Gupta, reserved its order on the decision on the tests.
 
The bench said it would decide later on the fresh tests on 31 samples of Maggi noodles, as requested by the government counsel on Monday.
 
Although the bench agreed in principle to have tested the 31 samples, identified by the government counsel, it reserved the order and said the decision would be made later.
 
The court would also decide in future regarding where the 31 samples would be tested, if at all fresh tests are called for.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Turkey downs Russian jet near Syrian border, pilot captured
Turkish warplanes on Tuesday shot down a Russian SU-24 fighter jet near the Syrian border after it violated Turkish airspace. One of its two pilots was killed and the other was captured, media reports said.
 
According to Tukish authorities, two F-16 warplanes shot down the Russian jet after it failed to heed at least 10 warnings within the rules of engagement, state-run Hurriyet Daily News reported.
 
The Rusian defence ministry refuted the claim that the fighter violate the Turkish airspace.
 
The jet crashed into tents in Latakia's Yamadi village near the Syrian border where Turkmens are currently staying, according to Turkmen sources. Its two pilots were seen landing with the aid of parachutes, witnesses said.
 
One of the pilots was killed and the other was captured by Turkmen forces in the region.
 
Video footage showed the plane crashing into mountains in Latakia province.
 
The Turkish General Staff released the radar trace analysis of the Russian jet. It shows the plane entered the Turkish airspace over the southern province of Hatay while circling over northern Syria.
 
However, the Russian defence ministry said the downed jet, which was at an altitude of 6,000 metres, did not violate Turkish airspace.
 
The ministry stressed that "throughout its flight, the aircraft remained exclusively above Syrian territory," BBC reported.
 
"Objective monitoring data shows it," the ministry added.
 
Turkey is a member of the NATO military alliance, which views an attack on one member as an attack on all. 
 
A NATO official told CNN on Tuesday that the alliance was monitoring the events closely.
 
"We are in contact with Turkish authorities and will have to wait to see how it develops," the official said.
 
Turkey has warned against violations of its airspace by Russian and Syrian aircraft.
 
Last month, Ankara said Turkish F-16s had intercepted a Russian jet that crossed its border and two Turkish jets had been harassed by an unidentified Mig-29.
 
The Turkish foreign ministry summoned the Russian ambassador last week to warn him that there would be "serious consequences" if the Russian air force did not immediately stop bombing "civilian Turkmen villages" in Latakia province.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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