Valuation dilemmas lead to panic fall in Bajaj’s stocks

The newly carved out demerger is expected to increase the market cap aggregate of the daughter companies by 10%. This was infact cut short with what could have been a 50% increase.

The mangement of the parent company decided to give its insurance JV partner Aliianz a call option to increase its stake in the life insurance venture to 74% and the non life general insurance venture to 50% which would expire in April 2016.This according to the management was a safety procedure which saw a potential valuation of the insurance business by several intermediaries of 13-18 thousand crore to a mere 575 crore of the Life Insurance and 421 crore for the general insurance venture by the end of FY08.

The combined market cap of the demerged entities is expected to be around 30,000 crore as against 27,000 crore of the prevailing BAL. It could have seen a valuation of 36,000 crore had there been no put-call options.

The demereger according to Rahul Bajaj would be from effect from 31 March 2007 but the process could take upto December 2007.This would mean that the existing shareholders would recive the shares of the new company only then which could have been a possible reason for the inexplicable fall in Bajaj’s stock on 17th May followed by another fall on 18th May which saw the market cap shed by 15% or Rs 4000 crore

Source: The Economic times, Mint

Bajaj announces demerger into 3 new entities

After much speculation of a demerger, one to the effect was finally anounced on 17th May. The Bajaj’s business will be rolled off into 3 new companies with the existing Bajaj Auto Ltd continuing as the holding company which will also have a mammoth Rs 6,000 crore in cash.

Under the new scheme of arrangement the auto businesses will come under the Bajaj Holdings and Investments Limited (BHIL),it will also have 1,500 crore in cash and the Financial services company which includes a joint venture with the UK insurance major Allianz will continue operations under as Bajaj Finserv (BFL).It also includes consumer finance, windpower projects and Rs 800 crore in cash.

Rajiv Bajaj will continue as the MD and CEO of BHIL whereas Sanjiv will manage BFL and remain the Executive Director of BHIL. Rahul Bajaj will remain the chairman of all the three companies.The board of the two new companies will have four members comprising Rahul,Madhur,Rajiv and Sanjiv Bajaj. However the BAL board will not be tampered with.

Source: The Economic Times, www.livemint.com