MUL expresses fear on Suzuki gaining control

Maruti Udyog’s initial public offer (IPO) of 72,243,300 shares is slated to hit the market sometime in june.

The draft prospectus also says that ‘Suzuki owns 54.2 per cent of our outstanding equity shares and is our controlling shareholder. As a result, Suzuki has the ability to exercise significant control over most matters requiring approval by shareholders, including the election and removal of directors and other significant corporate transactions’.

In addition, Suzuki could, by exercising its powers of control, delay or defer a change in control of the company or a change in company’s capital structure, delay or defer a merger, consolidation, takeover or other business combinations involving the company. The apprehensions are expressed on the human resources front when the prospectus says that ‘following Suzuki’s acquisition of a controlling interest in MUL, the success of our business also depends on our continued ability to integrate Suzuki personnel into our management structure’.

Suzuki’s relation with General Motors of US have also been brought under doubts. Nearly 20 per cent of Suzuki’s equity shares are owned by General Motors group which also has an Indian venture competing with MUL in segment C of the Indian automobile industry. The company says that its agreements with Suzuki place restrictions on its ability to export and to manufacture and sell products that compete with the products covered by the agreements between Suzuki and General Motors. It further added that Suzuki’s global interests and our interests as a company may not always be aligned in the future.

Company’s dependence on Suzuki has also been taken as a significant internal risk factor. It said that ‘Suzuki is entitled to terminate any of its existing licence agreement with us by giving notice six months before the end of the original term and each renewal period’.

Besides this, according to MUL, its commercial relations with some of Suzuki’s affiliates relating to the supply of materials, services, spares and accessories is also under threat. MUL says that ‘if Suzuki terminates any license agreement or any of its affiliates terminate their agreement with us, we may be unable to obtain necessary inputs, information or services for our business from alternative sources or at a reasonable cost’. It further said that ‘since we are substantially dependent on Suzuki and Suzuki’s technical personnel, if a material adverse change occurs in Suzuki’s business, our business may be adversely affected’.