The TVS group is one of India’s oldest and most prominent family business groups with more than 110 years of history. The group consisting of around 50 companies is being run by the third- and fourth-generation members of the family. In late 2020, the group announced that the various streams of the family are formally splitting the group businesses. By early 2022, the split was legally complete, and the different streams of the TVS family started running their businesses as separate groups.
This case describes the path taken by the TVS group since its beginning and the events leading to the formal and amicable split. It explains the framework adopted by the group for the split, in detail. This case highlights the governance issues in the group companies, following the split and the potential future conflicts between various streams of the family.
The family arrangement
In January 2022, the business newspapers were prominently highlighting how the 110-years-old TVS group family was able to split the group companies amicably among themselves. The group called the settlement ‘Family Arrangement.’ Many reports indicated that the TVS separation model could become a template for other business groups’ family members who want to part ways.
However, some tough questions remained to be answered in the future. All the TVS family groups were allowed to freely use the brand name TVS perpetually in the future without any royalty. However, what might happen if two TVS business groups decided to enter the same business with the TVS name in the future? Also, there were questions about governance issues in defining related party transactions after the formal split in the group.
Origins of the group
The TVS group was founded by Thirukkurungudi Vengaram Sundram Iyengar, from south Tamil Nadu. Sundaram Iyengar was a qualified lawyer and worked in the Indian Railways and later at a bank. In 1911, he quit the job and set up bus transport company based at Madurai in Tamil Nadu (then known as Madras State). TV Sundaram Iyengar & Sons (TVS & Sons), was founded in 1911, and incorporated as a private limited company in 1929.
Soon, Iyengar’s five sons also joined the business. After the early death of one of his sons — TS Doraisamy in 1943, the other four sons, TS Rajam, TS Santhanam, TS Srinivasan and TS Krishna continued to run the business. They expanded their businesses into automobile dealerships and services, through Sundaram Motors division and Madras Auto Service division. TVS & Sons became the parent company for the group’s other ventures. The shares of TVS & Sons were held by the four sons of Iyengar and their family members.
For the first 50 years, the group was engaged in services businesses like rural transport, car dealership, auto parts distribution, vehicle insurance, and auto finance. The four brothers who together ran the group businesses decided to venture into manufacturing in the late 1950s. Starting 1960s, the group got in to auto components manufacturing through joint ventures. Wheels India Ltd. was the first manufacturing venture of TVS group followed by Sundaram Clayton, Brakes India and Lucas TVS and Sundram Fasteners.
Evaluation of ownership structure of the group
TVS & Sons had four direct subsidiaries, namely, Southern Roadways Ltd, Sundaram Industries Pvt Ltd, Sundaram Fasteners Ltd and Sundaram Textiles Ltd. Almost all the other companies in the group, specifically the public limited companies were promoted by the parent company. TVS & Sons along with two of its subsidiaries, namely, Sundaram Industries Pvt Ltd (SIPL), and Southern Roadways Pvt Ltd (SRPL), held a considerable proportion of the share capital of the rest of the group companies, exceptions being Sundharams Ltd and Sundaram Finance Ltd.
Hence these three companies were the holding companies of the group. Up to 1973 only male lineal descendants (meaning male descendants in the male line only) could hold shares and be members of the company. After 1973, the word ‘male’ was deleted and the clause read as “only lineal descendants of TV Sundaram Iyengar shall be members.” In 1979 this clause was also deleted to remove the restriction and conform to the requirements of a public company. A special resolution was passed defining a ‘family’ and laying down conditions under which decisions could be undertaken in a board meeting.
According to this resolution, the ‘family’ strictly comprises the four sons of TV Sundaram Iyengar, and their spouses. Even though the company document filed with the Registrar of Companies classifies the holding of shares among three components, namely, bodies corporate, directors and their relatives, and other top 50 shareholders, a study of each of the components reveals that the bodies corporate are nothing but small private limited companies promoted by one or other of the four families with shares held by the family members themselves. The four families between them hold a cent per cent of the shares.
Beginning of family conflicts
The group companies worked together almost as single unit with lots transactions among them as they were mostly part of the auto ancillary value chain. The second generation family members, the four sons of the founders, also worked as a cohesive unit, and built group companies successfully. By the late 1960s, the third generation family members started participating in the management of the companies.
TS Krishna (1910-1975) and TS Srinivasan (1921-1979) passed away in the seventies, followed by TS Rajam (1901-1982) in the early 1980s. The third generation effectively took control of the group companies that they were managing in the late 1970s. Each stream of the family focused on specific companies within the group. Starting from 1975, the TVS group saw some conflict situations emerge between the third generation family members, leading to legal proceedings.
The discontent within the family business group became explicit in 1982 after the death of TS Rajam. The family appointed Ramachandran Haresh, TS Rajam’s grandson, as executive director of the holding company TVS & Sons, in place of Rajam. Suresh Krishna, eldest son of TS Krishna went to court challenging the appointment.
Though Suresh Krishna withdrew the case later, it became clear that the third-generation family members had disagreements between them about running the various businesses. In order to avoid further problems, the family informally decided to split businesses and part ways. They also appointed experts to evaluate assets for partition.
However, the formal split did not materialise as there were complex cross-holdings between the group companies run by different streams of family members. Also, the group companies were part of the value chain of the auto ancillary industry and had plenty of business transactions between them. Given the licence raj regime prevailed at that time, finding a new business partner was difficult and the group companies continued to stay together. However, the tension between the four streams of the families continued in the 1980s.
Each of the four families has a quarter stake in the holding company TVS & Sons, and each had three directors on the 12-member board. However, the top managerial positions, including the Chairman, and, Managing Director roles were always with the families of Santhanam, the only living son of the founder, and Rajam. It did not go down well with the rest. In order to overcome the discontent, R Ramachandran, eldest son of TS Rajam, was appointed as the Chairman of the parent company TVS & Sons. However, the other two families continued to feel side-lined.
Family conflicts in 1990s
In 1991, the Indian Government liberalised the economy, removing the licence raj and inspector raj. This allowed the companies to expand or start new businesses without waiting for licenses, opening up new opportunities for business firms. Making full use of the opportunity, in August 1992, the Santhanam-controlled company Brakes India attempted to get into the manufacturing brake-linings business, which was the main activity of Sundaram Abex (now known as Sundaram Brake Linings Ltd), an entity controlled by the Krishna family.
The Rs 100 crore (FY 1991-92) Brakes India was buying 60 per cent of brake-linings manufactured by the Rs 26 crore Sundaram Abex. In early 1992, Brakes India argued that the quality of brake linings supplied by Sundaram Abex was not up to the mark and decided to manufacture brake linings on its own. However, the Krishna family felt that the objective was to kill Sundaram Abex and ensure the growth of Brakes India Ltd.
The Srinivasan family group also supported the Krishna family. The Krishna and Srinivasan families had lined up against the families of Santhanam and Rajam, who had traditionally controlled the group.
In mid-1992, the Krishna-Srinivasan families opposed the re-appointment of R Ramachandran and TS Santhanam as the Chairman and Joint Managing Director of the TVS & Sons respectively, alleging that they were acting against the interests of Sundaram Abex. However, both of them were re-elected with a favourable court order.
Again in August 1992, the Krishna-Srinivasan combine went to court and got an order restraining Brakes India from manufacturing brake linings. Venu Srinivasan, the eldest member of the Srinivasan family said, “My uncle (Santhanam), the eldest member of the family, instead of protecting the interests of the TVS Group is protecting the interests of his son (Viji) and his son-in-law (Ramanujam).” They were the managing director and joint managing director of Brakes India.
Adopting a federal structure
However, soon the families realised that a prolonged family fight would hamper their attention towards the business growth. Given that the Indian automobile industry was open for foreign investments and many automobile MNCs had lined up investments in the Indian automobile sector, there were plenty of opportunities to grow for each of the TVS group firms.
Hence, guided by their long-standing family values, by the mid-1990s, the four families decided to sort out the issues among themselves and started focusing on building their respective businesses. As the businesses continued to grow, the relationship between different streams of family had also improved.
In the early 2000s, TVS group companies started inducting the fourth generation family members into the business. The family members pointed out that said there was a good bonhomie between the cousins and they regularly met to discuss strategies to step up exports and globalise operations of group companies by leveraging the strong TVS and Sundaram brands. To avoid any dispute again within the broad TVS group, the family did not fill the Chairman post at TVS & Sons after the death of R Ramachandran in 2004 .
In the early 2010s, the two sons of TS Srinivasan decided to separate their group companies, within the umbrella TVS group, amicably. Venu Srinivasan got Sundaram Clayton Ltd along with its automobile subsidiaries, including TVS Motors. Gopal Srinivasan got the electronics and asset management businesses.
The mid-2010s saw the fourth generation members taking reins of the group companies and the third generation family members retiring from active roles. In March 2015, Suresh Krishna was appointed as the Chairman of TVS & Sons, after that position remained vacant since 2004. The family also converted the holding company into a private limited company, to avoid lesser scrutiny by external parties. Both moves indicated increasing trust levels among various streams of the larger TVS family.
Seeds of formal separation
By the late 2010s, the TVS group had over 50 companies with a workforce of around 40,000 employees. These group companies operate in industries that range from two-wheeler and automotive component manufacturing to automotive dealerships, finance, and electronics. Though the group had adopted a federal structure, there were three common holding companies. The major holding company was the oldest, TVS Sundaram Iyengar & Sons Ltd. Two of its subsidiaries Sundaram Industries Pvt Ltd and Southern Roadways Pvt Ltd were the other two holding companies.
Together, these three firms have funded, and hence held stakes in the group companies that have emerged over the years. By late 2010s, the family members felt that the ownership of shares in various companies should align and synchronise with the management of the respective companies. Hence, in late 2020, the TVS Group decided to formally divide the empire among the fourth generation family members.
They decided to restructure the ownership structure of the group by scrapping the common holding companies. This would formally split the group and give each family group complete ownership of the businesses they manage. The family also decided to unwind the crossholdings to avoid future discontent. Post re-structuring, the existing management of the various listed and unlisted businesses in the group would continue to be managed by the same family members. The TVS brand and Sundaram brand would be allotted to each family group for their use in their lines of business on a perpetual, royalty-free basis.
Family settlement arrangement
As the first step of the arrangement, on January 11, 2022, Sundaram Industries Pvt Ltd (SIPL) and Southern Roadways Pvt Ltd (SRPL) got merged into TVS & Sons on a share exchange ratio based on valuation. Both companies got dissolved, without the process of winding up. As a result of this merger, the shareholding of SIPL and SRPL got transferred to TVS & Sons. As the second step, the shareholding of TVS & Sons in various TVS group companies got demerged into holding companies of the different streams of family.
This resulted in the holdings of the group companies that run the businesses got changed, though the operational companies themselves were not directly part of the family agreement. Post-restructuring, the TS Srinivasan family had three holding companies running the listed companies as explained below.
The elder son of TS Srinivasan, Venu Srinivasan and his family control TVS Motor company Ltd. The three TVS holding companies held 64.72 per cent in Sundaram Clayton (SCL), which is the holding company for TVS Motor. Post amalgamation of SIPL and SRPL with TVS & Sons, the 44.94 per cent shareholding of the two companies got transferred to the latter.
Hence TVS & Sons became the only holding company with 64.72 per cent stake in Sundaram Clayton . Later on 4th Feb 2022, the two-wheeler, auto parts and die casting undertakings of TVS & Sons, comprising the equity shares of Sundaram Clayton was demerged from it and moved to TVS Holdings Pvt Ltd (THPL). Venu Srinivasan family would control THPL. The second son of TS Srinivasan, Gopal Srinivsan and his family control TVS Electronics Ltd and the privately held TVS Capital Funds Pvt Ltd. TVS Investments Pvt Ltd (TIPL) held 59.84 per cent in TVS Electronics Ltd.
The TVS Holding Companies held 85 per cent stake in TIPL. SIPL and SRPL held 39.94 per cent & 19.97 per cent in TIPL, the holding company of TVS Electronics Ltd. After the merger, it got transferred to TVS & Sons, resulting in its stake in TIPL becoming 85 per cent. On 4th Feb 2022, TIPL merged into this family’s holding firm, Geeyes Family Holdings Pvt. Ltd. (GFHPL) and hence its 59.84 per cent stake in TVS Electronics Ltd. Then GFHPL got renamed as TVS Investments Private Ltd.
The son-in-law of TS Srinivasan, TK Balaji and his family controlled the auto electrical parts makers Lucas TVS Ltd, India Nippon Electricals Ltd and auto ancillary companies like DelphiTVS technologies ltd. These firms are all are privately held and their ownership got transferred to TK Balaji Family holding company. TS Krishna stream of family also got three holding companies, running the listed companies as explained below.
The elder son of TS Krishna, Suresh Krishna and his family controlled Sundram Fasteners Ltd (SFL) and ancillary companies. The three holding companies held around 50 per cent stake at SFL. Post amalgamation with TVS & Sons, SRPL’s 24.16 per cent stake in SFL was transferred to the former. As a result, TVS & Sons’ stake in SFL had gone up from 25.37 per cent to 49.53 per cent . SIPL did not have any shareholding in SFL.
Subsequently, on February 4, the fasteners business undertaking of TVS & Sons, i.e. the shareholdings in Sundram fasteners was hived off as a separate company called TVS Sundram Fasteners Pvt Ltd (TSFPL)14. Suresh Krishna’s family would control TSFPL. K Mahesh, another son of TS Krishna, controlled Sundaram Brake Linings Ltd (SBLL).
Similar to the other arrangements, SIPL’s 6.45 per cent stake and SRPL’s 12.16 per cent stake in Sundaram Brake Linings Ltd (SBLL) got transferred to TVS & Sons, thereby increasing its stake in SBLL to 32.67 per cent. Later it got demerged and transferred to Madurai Alagar Enterprises Pvt Ltd (MAEPL). It became the holding company for the K Mahesh family group.
K Ramesh family managed the Southern Roadways Pvt Ltd, a privately-held company. After the amalgamation with TVS & Sons, the roadways business got separated and vested with the new company. The ownership of that company got transferred to a holding company controlled by K Ramesh Family. The TS Rajam and TS Santhanam families chose to have only one holding firm each that would hold stakes in the companies they respectively manage.
The TS Santhanam family’s holding company is Trichur Sundaram Santhanam & Family Pvt. Ltd. (TSSFPL). SRPL had 9.28 per cent stake in Wheels India Ltd (WIL). This got transferred to TVS & Sons, thereby increasing its stake from 20.41 per cent to 29.69 per cent at Wheels India Ltd. SIPL did not have any shareholding in WIL. TVS & Sons also held 21.87 per cent stake in another group company called India Motor Parts & Accessories Limited (IMPAL). The latter in turn held 4.57 per cent stake at WIL.
On 4th Feb 2022, Sundaram Motors, and Madras Auto Service Dealership and automotive business of TVS & Sons, which includes stake in WIL as well as IMPAL were hived off as a separate company and transferred to Trichur Sundaram Santhanam & Family Private Limited (TSSFPL).
TS Santhanam family also controls Brakes India Ltd (BIL). Post restructuring the three holding companies’ stake in BIL also got transferred to TSSFPL. Similarly, SIPL’s 9.79 per cent stake in TVS Srichakra Ltd (TSL) moved to TVSSL, increasing its stake in TSL to 37.52 per cent. This shareholding later transferred to TVS Mobility Pvt Ltd (TMPL) controlled by the TS Rajam Family.
As per the arrangement, the TVS division of TVS & Sons and TVS Logistics would go to TMPL. After the re-structuring got implemented, the group companies started making quick business moves and board-level restructuring. Sundaram Finance Holdings (SF Holdings), belonging to the TS Santhanam family pared its stake in Sundaram-Clayton by 1.5 per cent to 9.94 per cent through an open market transaction. All the family groups together will still be holding around 0.01 to 0.25 per cent in other family’s holding companies with ordinary shareholders’ rights.
One of the significant changes happened at the Venu Srinivasan group, with Venu Srinivasan relinquishing the Chairman position at both the listed companies, TVS Motor and Sundaram Clayton Ltd. Both firms got a non-family member as the new chairmen. There were top-level changes at TVS Supply Chain Solutions also, which is part of ₹15,000 crore TVS Mobility Group controlled by TS Rajam Family. The company appointed a non-family member, Ravi Viswanathan as the Managing Director, inducted two independent directors and unveiled plans for a ₹5,000 crore Initial Public Offering.
The potential issues
Though the family members are satisfied with the restructuring, the media report indicated that there are corporate governance issues in the way restructuring was executed and raised questions about the future external shareholder value protection in the listed TVS group companies. It was pointed out that the Venu Srinivasan family cluster businesses had the highest value compared to any other cluster pertaining to the other families.
TVS Motor Ltd alone had a market cap of about ₹31,000 crore (early February 2022), in which Sundaram Clayton held around 53 per cent. In comparison, the second-most valuable company in the TVS group, Sundram Fastners, has a market cap of about ₹17,600 crore.
The fine print of the family arrangement was not made public but Ranganathan V, a former E&Y official and an expert in family businesses, said, “The family controlling TVS Motor and Sundaram-Clayton may have to pay a cash value to other families due to the higher market capitalisation of TVS Motor compared to other companies. This may be to even out the imbalance in the valuation.”
In another article, Ranganathan pointed out that there are governance issues in some of the merger and demerger announcements made by Sundaram Clayton and its holding companies namely TVS Holdings Ltd and VS Investments Ltd controlled by the Venu Srinivasan family. He pointed out that due to the complicated deals, the public shareholders will, over time, be forced to exit at sub-optimal valuation and the promoters would have the luxury of time to consolidate their holding indirectly in TVS Motor.
There might also be potential problems with respect to the usage of the brand name. TVS is a very powerful household brand name with lots of credibilities. As per the arrangement, the TVS Brand can be used by all family groups. The family agreement also had no royalty or brand usage payments from the operating companies to the TVS Family members or the holding companies.
However, in future, it might create a rift between the different TVS family groups, if their business interests clashes. The experts pointed out that there was an agreement between the Munjal family regarding the ‘Hero’ brand. Despite that, two Munjal family groups got into a fight regarding the use of the ‘Hero’ brand for electric vehicles. The TVS Group may also face similar troubles in the future, warned the experts.