Godrej split: Experts weigh on amicable settlement impact on stock prices

Say stock prices will react positively as key overhang removed

The amicable split of the 127-year-old Godrej group will ensure that the shareholder value is not hit, governance and market experts said on Wednesday, while expressing hope that it could also boost the stock prices of the five listed group firms.

After years of negotiations, Godrej family announced a “shareholding realignment” after the market hours on Tuesday. Under the new arrangement,  Jamshyd Godrej, along with his niece Nyrika Holkar and their families, will oversee the unlisted Godrej Enterprises Group (GEG), encompassing Godrej & Boyce and its affiliates.

Nadir Godrej and Adi Godrej, along with their immediate families, will control the Godrej Industries Group (GIG), which houses listed firms such as Godrej Industries, Godrej Consumer Products, Godrej Properties, Godrej Agrovet and Astec Lifesciences.

Experts said there are several recent examples of shareholders’ wealth getting destroyed and business growth getting impacted on account of disputes over family settlements. The way such a large and complex group like Godrej has handled the ownership issue will be welcomed by the stock markets, they said.

“Business families like the Godrej group are increasingly realising that an amicable settlement is better. Else, the wealth of all shareholders gets destroyed. Also, the new Sebi regulation on disclosure of any family agreement is pushing families to have simple structures,” said Shriram Subramanian, Founder and Managing Director, InGovern Research Services.

“Overall, how this has been handled shows dignity in the whole process. Unlike other business families, there is no acrimony. Post this, the focus of each of the subgroups will be much sharper,” said Amabareesh Baliga, independent equity analyst.

Market experts believe the five Godrej group stocks could react positively to the family settlement when market opens on Thursday as a key overhang is removed.
 

Ahead of the announcement, shares of Godrej Industries had shot up close to 6 per cent, Astec Lifesciences had hit 5 per cent upper circuit, while Godrej Consumer Products, Godrej Properties and Godrej Agrovet saw little change over their previous day’s close.

Experts said the Godrej settlement ensures that minority shareholders don’t come in the crosshairs of bitter family feud. Some of the recent examples of this is the dispute between Baba Kalyani and sister Sugandha Hiremath over ownership of Hikal.

Shares of Hikal are up just 2 per cent in the past one year even as the Nifty Smallcap 100 index has rallied 75 per cent.

Another example of family feud cited by experts was the battle between the three Kirloskar brothers which led to a lot of charges and counter-charges before market regulator Sebi intervened; feud between the cousins Prakash Chhabria and Deepak Chhabria of the Finolex group.

Governance experts urge India Inc to chalk out a succession plan to ensure business continuity.

“Business families also need to think of how the next generations will benefit from the wealth and work to separate ownership from management,” said Subramanian.

Hetal Dalal, President at Institutional Investor Advisory Services (IiAS), a corporate governance firm, believes companies can learn from other’s mistakes and also empower their independent directors.

“Corporate history in India is replete with family feuds causing the downfall of companies. Learning from history and avoiding these mistakes is critical for boards. Independent directors must ask whether the board needs to get embroiled with intra-promoter group disputes. While it is impossible for the disputes not to be taken to the board, it is the independent directors’ responsibility to protect the company from such battles. If not, the company will be dragged into endless litigation and the management will remain distracted. None of this is in the interest of the larger set of stakeholders,” she wrote in a blog on promoter family feuds. 

Tracking tiffs 

Hikal:Dispute between Baba Kalyani and sister Sugandha Hiremath over ownership issue of 34% stake

Kirloskar Industries: Dispute between brothers Sanjay, Rahul, and Atul over restructuring of family holdings

Finolex Cables: Dispute between cousins Prakash Chhabria and Deepak Chhabria over control of the firm

Godfrey Phillips: Family feud involving Lalit Modi and mother Bina Modi, after demise of KK Modi

Raymond: Feud between father and son Vijaypat and Gautam Singhania