The Astute Businessman

N.K. Firodia and Rahul Bajaj

People familiar with the rise of Bajaj Auto would know how the divorce between Rahul Bajaj and NK Firodia ended up in a big battle for custody. While Rahul Bajaj walked away with majority shareholding in Bajaj Auto, NK Firodia got Bajaj Tempo (now known as Force Motors). But what’s interesting is that even after the separation the two families still continue to hold shares in the other’s company, on the lookout for an opportunity of a hostile takeover. In 1968 when the separation war was at its heights, both the families started increasing their shareholding in Bajaj Auto. While Firodia managed to increase his holding from 13% to 23%, Bajaj managed to increase from 28% to 51%, just enough to take charge. A key buyout was a 4% block owned by government owned financial institutions. While Firodia offered Rs. 262.5/share for shares having market value of Rs. 260, However, Bajaj went all out aggressive and offered Rs. 411/share. This short-term loss helped him take control of the company and reap the benefits of it in the long run.

Not long after this, Bajaj was in talk with the Italian giants Piaggio for a strategic alliance. Bajaj wanted technological inflow in his company while Piaggio would be getting rights to sell Bajaj scooters worldwide. However, the talks fell down when Piaggio suggested a 10% cross holding in each other’s companies. Bajaj knew that if the deal went through and things didn’t turn out well with Piaggio then not only would he lose absolute control of the company, and the Firodia’s may woo Piaggio to support them, but also any hopes he had of passing a special resolution, if need be, would vanish since one needs at least 66% shareholder votes. Talks fell down not once but thrice, the last time with everything in place and agreed except this condition of 10% crossholding. Bajaj didn’t feel threatened when Piaggio made technical collaboration deals with Lohia Machines Limited and Andhra Pradesh Scooters. There was absolutely no chance he was risking the company and his future for short term benefits of 5-10 years. Eventually the Piaggio deal with Lohia Machines and Andhra Pradesh Scooters fell through as both companies weren’t able to stand up to Bajaj Auto and went bust. The only person who had a smile on his face by the end of all this was Rahul Bajaj.