Divide & Conquer

If ‘divide and rule’ was the mantra of the colonialists, “divide and grow” is that of India Inc. Look around. For Corporate India, a split or a division of business has become a harbinger of opportunities. Of course, when it is a family empire at stake, then the sheer weight of shared history and bad blood sets the stage for a riveting exchange. Thanks to the Ambanis, Bajajs, Sheths (GE Shipping), Kasliwals (S Kumars) and the Piramals (Nicholas Piramal, VIP), our appetite has been well satiated.But all splits are not tantamount to bitter feuds. In fact, it could be a shrewd and calculated move to unleash the latent potential of a business. One that shareholders would welcome. This trend has been evident over the past two years with several companies taking decisions to split or de-merge. The common reasons are management disputes or underperformance. Some, like Zee Telefilms, made a conscious business decision to have greater maneuverability. The rationale behind a split could simply be to enable each company to better focus on their core skills and business. When a company forays into new and unrelated businesses or, simply put, diversifies too much, it becomes difficult for investors and shareholders to assess the company. A split or de-merger is a logical outcome and the enterprise value of the new entity is able to attract a premium. Irrespective of the trigger, splitting a business unlocks shareholder value, contrary to the popular belief of wealth erosion. In fact, we have looked at some such examples where shareholders have been generously rewarded. GTLGTL is an IT player specialised in network services and infrastructure segments. GTL Infrastru-cture Limited (GIL) was formed as a 100 per cent subsidiary that focuses on telecom operators and IT-enabled service organisations. On September 2, 2005, the board announced that the shareholders of GTL would receive one share of GIL for every share of GTL. The demerger was approved on November 21, 2005. Consider this: On September 5, 2005, GTL closed at Rs 121.25 and the closing price on March 23, 2007, was Rs 138.55. GIL, which got listed on November 9, 2006, closed at Rs 43.50 and its closing price on March 23, 2007, was Rs 31.60. GTL had touched a high of Rs 178 on May 9. Shareholders would have got an a