Two is better than one

Two is better than one

The plan to demerge Bajaj Auto into two companies is a good one. There has been speculation for the past few years that the company’s main auto business and its large finance and investment business would be separated.

Chairman Rahul Bajaj now says that a decision could be taken in the coming months. The demerger will unlock shareholder value,especially given the fact that Bajaj Auto has a large stake in companies such as ICICI Bank and insurance company Bajaj Allianz.

The news of the proposed demerger also serves as a useful counterpoint to all the excitement over recent mergers and acquisitions. It shows that corporate restructuring involves both mergers and demergers, and there is a lot of scope in India for both.

India has seen several demergers in recent months that have increased shareholder wealth. The carving up of the Reliance empire between the two warring brothers is the best-known example. There is also the break-up of GE Shipping into two companies. Smaller companies like Morarjee Realities and JK Corp. have also split into two.

So, while we will see fusion through mergers, expect a bit of fission through demergers as well.