M&A Critique

TVS group goes for multiple restructuring exercise as part of family settlement. Whether Sundaram Clayton scheme is last?

TVS group has grown into a large business conglomerate with an interest in several businesses including a few listed entities. Ownership of those diverse ranges of businesses was through various entities in which branches of the TVS Family hold shares. The present shareholders of the ultimate holding companies of the group consists of third & fourth generations of the founder, Mr. T. V. Sundaram Iyengar. To avoid conflict situations involving friction amongst TVS Family members and legal proceedings, TVS Family entered into a family arrangement to achieve an equitable partition of ownership and management interest of family branches amongst various businesses.

As a part of the family arrangement, recently, the TVS Group entered into a series of amalgamations & demergers (“Group’s Corporate Restructuring”) involving the splitting of the group’s holding companies i.e., T. V. Sundaram Iyengar & Sons Private Limited, Sundaram Industries Private Limited and Southern Roadways Private Limited and separating the businesses along with ownership to the respective family branches.  This group’s corporate restructuring doesn’t directly involve any of the group’s listed entities. 

Immediately, after the effectiveness of the above scheme, Sundaram Clayton Limited announced a composite scheme of arrangement involving the demerger of non-ferrous gravity and pressure die castings along with the amalgamation of its holding company and other group entity. In addition, Sundaram Clayton Limited will also give bonus preference shares to its equity shareholders which have been clubbed with the composite scheme. In this article, we have tried to evaluate whether this scheme has to relation with the group’s arrangement and its implications on various stakeholders mainly minority shareholders.

Companies involved

Sundaram – Clayton Limited (“Transferee Company” or “Demerged Company” or “SCL”) is engaged, inter alia, in the business of manufacturing non-ferrous gravity and pressure die castings and has four manufacturing plants located in Tamil Nadu. Other than that, it is also engaged in the business of manufacturing and distributing two & three-wheeler vehicles through TVS Motor Company Limited (“TVS Motors”).

TVS Motor is the group’s flagship/largest company. Currently, SCL holds circa 50.26% of TVS Motors. The equity shares of SCL are listed on nationwide bourses.

As a result of family arrangement, the ownership of SCL along with TVS Motors has been vested with Venu Srinivasan Family.

TVS Holdings Private Limited (“Transferor Company 1” or “THPL”) is a private company engaged in the business of making and holding investments and trading in automobile spare parts. As a part of the group’s corporate restructuring, 64.72% of the shareholding of SCL has been transferred to THPL, thus making it a holding company of SCL.

VS Investments Private Limited (“Transferor Company 2” or “VIPL”) is a private company engaged in the business inter alia of making and holding investments and trading in raw materials and components relating to automobiles. The company has been incorporated in September 2021. VIPL has taken significant borrowing which in turn has been given to the promoters. It looks like the loan taken in pursuant to the group’s corporate restructuring. Currently, VIPL does not hold any shares (equity or preference) of SCL. However, pursuant to the arrangement mentioned below, before the appointed date for amalgamation of VIPL with SCL, VIPL will hold significant preference shares which are to be issued by SCL as a bonus share.

Sundaram-Clayton DCD Limited (“Resulting Company” or “SCDL”)) is a public company incorporated to carry on the business of manufacturing non-ferrous gravity and pressure die castings. The Resulting Company is a wholly-owned subsidiary of SCL.

Sundaram-Clayton-TVS-Group-Restructuring-1
Sundaram-Clayton-TVS-Group-Restructuring-2

The Transaction

The Composite Scheme of Arrangement inter-alia provides for amalgamation of the holding c & group company with SCL followed by the demerger of non-ferrous gravity and pressure die castings business of SCL to SCDL. In addition, SCL will also give bonus preference shares to its equity shareholders through the same scheme.

The chronology of the events as envisaged under the scheme:

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Aniruddha Jain