Kolkata: The sparring co-promoters of Warren Tea Ltd last week concluded an agreement to resolve their outstanding disputes by splitting between themselves the firm’s 14 tea estates, all located in upper Assam.

Spurred by the development, the company’s shares on Thursday hit the circuit filter, jumping 5% to 2,87.25 on BSE. On Thursday, the stock ended a seven-trading-session losing streak, while BSE’s benchmark Sensex rose 0.82%.

In fiscal 2011, Warren reported 213 crore in revenue and registered a net profit of 20 crore.

“The (proposed) partition is saddening," said Subhajit Ghosh, Warren’s managing director, who has been with the company for nearly three decades. “It would have been so much better if the two co-promoters could patch up and run the company together."

The Goenka family, which currently controls Warren, has agreed to a “vertical split of the company" in line with an August pact between it and the Ruias, the estranged co-promoters of the firm.

Separate ways: Managing director Subhajit Ghosh says the two families will have equal representation on the board till the firm is legally split. Indranil Bhoumik/Mint

Lawyers from both sides have “formalized with minor changes" the agreement from August, according to people familiar with the development, who did not wish to be named. No lawyer was involved when in August the two families agreed on how to split the company’s assets.

It could take months to legally carve up Warren because it requires several regulatory approvals, and as an interim arrangement, the company’s board will be restructured by inducting at least three representatives of the Ruia family. Both families will have four representatives each on Warren’s board.

“It has been decided that the two families will have equal representation on the board till the firm has been legally split," said Ghosh. “This could take up to six months."

The two families hold around 42% apiece in Warren. The rest is widely held among some 12,000 shareholders, who are going to receive shares of the new company that is to be created by the split. The new firm is also likely to be listed, according to Ghosh.

Two separate management teams comprising representatives of the two families are to be created within Warren to look after the “mutually exclusive interests" of the two promoter groups. This will be done after they determine between themselves who will take over which gardens, according to the unnamed people cited above.

In August, it was decided between the two families that Goenka would divide Warren’s assets into equal halves and Ruia would choose between them. It was also agreed that the Ruias would retain the rights to the Warren trademark and the Goenkas would take the firm’s head office in Kolkata’s Hungerford Street neighbourhood.

But the agreement collapsed in September ahead of the company’s annual general meeting (AGM). The Ruias were barred from attending the AGM, and they moved the Calcutta high court challenging the transactions of that meeting, which included the appointment of Goenka as chairman.

It has now been decided that Goenka will, by the end of December, carve up the assets of the firm, and by January, Warren’s board will be restructured to include representatives of the Ruia family, according to the unnamed people cited above.

It has also been decided now that the Goenkas are going to keep the three hotels that Warren has built in Rajasthan along with the one under construction, according to Ghosh. This implies that the Ruias are going to receive the other real estate assets of the firm and its subsidiaries, which include a five-acre plot on the Delhi-Jaipur highway.

What is likely to have brought the August agreement back on track is the entry of Radhe Shyam Saraf, a Kolkata-based investor, who picked up from the market a 4.58% stake in Warren, according to a lawyer following the legal battle. He too did not want to be identified.

Ahead of the AGM in September, Warren legally challenged Saraf’s voting right in the Company Law Board, suspecting that he was acting in concert with the Ruias to oust the Goenkas, the lawyer said.

“With so many hostile shareholders around, it seems the Goenkas felt it was best to resolve the dispute," the lawyer said. Saraf’s intentions for his investment in Warren remain unknown. He couldn’t be contacted.