Sucheta Dalal :Stake sale row adds fuel to Maharashtra Scooters’ run
Sucheta Dalal

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Stake sale row adds fuel to Maharashtra Scooters’ run  

March 18, 2010

Despite being a dormant company for years, the share price of Maharashtra Scooters Ltd (MSL) has been surging. MSL shares have zoomed 67% since January this year. This phenomenal run on the bourses is only due to an ongoing tiff between two of its stakeholders over the valuation of the company.

For a while now, MSL has been dormant. It was forced to shut down operations ever since Bajaj Auto Ltd decided to stop production of scooters. Bajaj Auto and the Western Maharashtra Development Corp (WMDC) each have a stake in the company. Bajaj Holdings currently owns 24% while WMDC owns 27% stake in MSL. Both entities had entered into an agreement, which stipulated that in case if any one partner intended to either part with or transfer its shareholding in the company, the other would have the first option to purchase such shares.

A few years ago, Bajaj Auto intended to become a majority shareholder in MSL, for which it sought to buy WMDC’s stake in the company. However, the two parties had differences over the correct valuation and the matter went in for arbitration. At that time (January 2006), the Arbitral Award valued MSL’s shares at around Rs151 per share, when the prevailing market price was around Rs315.

This valuation obviously didn’t go down well with the state government agency and it subsequently appealed against the Award in the Bombay High Court (HC). Recently, the High Court set aside the Award given by Justice Sawant, ruling in favour of WMDC and preventing Bajaj Auto from buying WMDC’s stake at around Rs152 per share.

Interestingly MSL has significant holdings in Rahul Bajaj group companies like Bajaj Auto, Bajaj FinServ, Bajaj Auto Finance and other group companies. As such, it has strategic significance for the Bajaj family. At current market prices, these investments in Bajaj group companies are worth around Rs1,000 crore.

WMDC has a higher number of representatives in the Maharashtra Scooters Board. This, along with the HC court ruling means that WMDC is under no obligation to sell its stake to Bajaj Auto and can offload the shares in the market at the prevailing price.

This has sent the company’s stock into a frenzy. Currently it is trading at Rs371. Other than the value of its investments, MSL has no business operations to support this upsurge in its stock price. An analyst with Anand Rathi said, “There is absolutely no manufacturing happening at the company’s end. In this situation, the stock price has run up too high. There is no value whatsoever at this level. Who will buy the stock at this value?”

A senior analyst with Enam Securities said, “MSL is basically a shell company. Its business has been wrapped up for a long time; it only has investments in various Bajaj entities, which it wants to sell. If it sells these investments, it will make a lot of money. That’s why the stock price is moving up so much.”

Bajaj Auto did appeal against the HC ruling, but the hearing ended with the same result. Bajaj Holdings has now appealed to the Divisional Bench of the Bombay HC. The matter is likely to come up for hearing at the court on 19th March.

There appears to be no end in sight to this saga. Bajaj Auto is unlikely to rest on its back and will continue to appeal to higher authorities. — Sanket Dhanorkar

-- Sucheta Dalal