Maruti Suzuki: Good Company or Good Stock (A)
(7 pages of text)
Case (Pub Mat)
On January 28, 2014, the management of Maruti Suzuki India Limited (MSIL) surprised the market by announcing that its plant in Gujarat would be operated as a subsidiary of Suzuki Motor Company of Japan, MSIL’s parent company, rather than by MSIL. The stock price fell by 8 per cent that day. The days following this announcement were marked by justifications by MSIL management about the benefits of the new structure and allegations by some analysts and fund managers that it was against the interests of minority shareholders. MSIL management took more than 20 months to send a letter to shareholders asking for their approval of the decision taken by the board. At that point, the shareholders needed to decide whether to support or oppose the decision.
This case can be discussed in advanced courses on corporate finance or business valuation in a graduate program. It can also be used in courses on financial modelling, where students can build a financial model to look at the impact of the proposed structure on MSIL’s value. It can also be discussed in a business ethics or corporate strategy course dealing with governance. The case gives students an opportunity to discuss valuation and the priorities of institutional investors in depth. After working through the case, students should be able to
- identify the valuation impact of a corporate announcement regarding the operation of a domestic plant as a subsidiary of an international parent company; and
- evaluate issues of performance and governance in an investee company, and determine which should be the priority of institutional investors.
India, Large, 2015
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