An announcement on 27 November 2023 by Carborundum Universal Ltd, a constituent of the Murugappa group, most likely signals the finale to the family strife which saw two of the women members of the family seek an equal right to occupy the position of directors that the male family members are entitled to.
The dispute that dogged the otherwise low-profile group, known for a tightly knit family unit that has harmoniously managed different businesses, started sometime in 2017 after the demise of MV Murugappan.
The two daughters, Valli Arunachalam and Vellachi Murugappan, disputed the settlement offer for their shareholding inherited upon the demise of their father and sought parity in treatment with the male members.
On 20 August 2023, the group’s listed entities simultaneously intimated to the stock exchanges the amicable settlement of the pending dispute and the withdrawal of the cases that were pending on this score. The communication implied a series of steps in this regard but with the clarification that the listed entities were in no way a party to the closure.
On 1 November 2023, the companies again issued a press release that the family settlement was complete in all respects.
Speculation was rife about how it was accomplished and what the respective parties gave up in the process.
The announcement by Carborundum, referred to above, in many ways puts a quietus to the subject.
The board of Carborundum met and took on record that Valli Arunachalam, Vellachi Murugappan and MV Murugappan Hindu undivided family-HUF (represented by Valli Arunachalam as Karta) stood derecognised as promoters of the company.
This would be subject to the due approval by the shareholders of the company. The announcement makes it amply clear that both sisters have accepted a settlement, most likely in cash, to exit their interests in the group companies.
The other listed entities of the group would follow suit and have similar board meetings to record a similar change in the status of the sisters from their position as promoters.
The next question that would arise is the manner in which the settlement was achieved and the cost incurred in the process for the rest of the family.
This is unlikely to be known fully in the public domain but some scattered information helps to piece together how this could have been managed.
There are three instances from 20 August 2023, when the first announcement was made, to date that one of the group’s promoter entities has sold significant shares in the listed entities, raising about Rs620 crore.
The most recent one is the sale by Ambadi Enterprises Ltd of 40.3 lakh shares in EID Parry (India) Ltd for around Rs190 crore.
On 29 September 2023, a substantial stake in Tube Investments of India Ltd amounting to Rs307 crore (approx.) was effected by Ambadi Enterprises Ltd and Murugappa and Sons.
A week before that, on 22 September 2023, shares of Cholamandalam Finance Holding Co Ltd were sold for about Rs122 crore by Ambadi Enterprises Ltd.
In these cases, Ambadi Enterprises has sold virtually all of its holdings in the respective listed entities.
It is not to be assumed that the cash settlement is equal only to the extent of the funds raised by the sale of the shares mentioned above. It is possible that some more shares were sold which the present search could not reveal.
It is also possible that some amounts would have been accrued in the various group private entities through periodic dividend receipts or raised through borrowings.
The actual quantum can be known only when the annual accounts of the family holding companies like Ambadi Enterprises and Ambadi Investments are filed on the corporate affairs portal.
The other hyper-technical question that may dog a curious professional would be how the money was passed on to the two sisters by Ambadi Enterprises. Is there a share extinguishment or a buyback or some other clever idea concocted by a tax expert?
Maybe any of these or simply that the shares held by the sisters in the main holding company of the group, Ambadi Investments Ltd, were bought by Ambadi Enterprises with the funds at its disposal.
What happens to the tax liability is too trivial a matter to seek an answer to. Most likely, the tax collection of the income-tax (I-T) department in Chennai would show a big jump in this quarter!
It is observed as an aside that the shares sold by Ambadi Enterprises were effectively in three holding companies of the group: Tube Investments is a holding company of CG Power, Cholamandalam Finance Holdings is the holding company of Cholamandalam Investments and Finance Ltd and the non-life insurance venture, and EID Parry is the holding company of Coromandel International.
In all these cases, the market value of the holding companies does not thoroughly pick up the value of the underlying investments! The family has actually raised a smaller sum for the effective holding divested! Further discussion on this is reserved for another day.
For the time being, it is clear that the two women members of the Murugappa family have exited the group, marking perhaps the first such break in the family which is currently well beyond the third generation when family groups are feared to disintegrate.
Compared to many family feuds that are multi-generational, the Murugappa family has solved and put a lid on what otherwise could have been opening a can of worms, as has happened and is happening in many cases in full public glare.
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(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies)