Murugappa Group and 3M Battle over Wendt India Enters New Phase

2012-03-09

Mar. 9, 2012 - The battle between the Murugappa group and 3M for control of Wendt India has entered a new phase, with the American conglomerate indicating that it is willing to sell its holding in the abrasives maker.
But a dispute over the price it is seeking to exit the joint venture with the Murugappa group company, Carborundum Universal (Cumi), could hamper a solution to an issue that is being adjudicated by the Company Law Board.
3M, whose products include the Scotch-Brite homecleaning range and Post-it notes, has told the Company Law Board that it is "not averse" to selling its 40% stake in Wendt to Carborundum, an executive of the Murugappa group told ET. But the valuation demanded by 3M, which is based on the market value of Wendt, is not acceptable to Murugappa group, Carborundum managing director K Srinivasan said.
Instead, 3M should settle for the valuation that was determined by KPMG, he added. 3M declined to comment. In 2010, by virtue of its nearly $500 million (Rs 2,500 crore) purchase of Winterthur Technologies, 3M became an equal joint venture partner of Carborundum in Wendt India. Both hold almost a 40% stake each. But Carborundum objected to the deal, saying it had the first right of refusal to buy out shares of Wendt GmbH (a German arm of Winterthur, which held the stake). Carborundum then moved the Company Law Board.
"They are expecting it to be at market and market plus premium, which is completely unacceptable because they bought it at a price of 12.8 million (Rs 85 crore) for their 40%," Srinivasan told analysts in a conference call recently. Carborundum has now asked a court to appoint a valuer.
Another way of resolving it, he said, will be if 3M agrees to sell Wendt to Carborundum as per the fair valuation report of KPMG, based on which it acquired the Winterthur stakes.
"This is a fair way forward and in line with their argument that they did not violate the law of the land at the time of transaction, and that it was only a consequential event and not the intended target," he wrote in an email. Wendt India posted a standalone net profit of Rs 3.5 crore in the third quarter, down from Rs 4.4 crore in the year-ago period. Revenue increased to Rs 24 crore, from Rs 22 crore.
Its shares have risen over 32% so far this year. If and when 3M's exit comes, it will be the first time Wendt India will be without a foreign partner in the 32 years of its existence. It started in 1980 as a JV between Wendt GmbH and the House of Khataus. In 1991, Cumi replaced the Khataus. But the Murugappa group isn't worried about this.
"There have been three ownership changes in five years at the Wendt GmbH that end with all its attendant uncertainty, disruption and changes. Wendt India has in the process learnt to live without the support of foreign JV partner. The eventual sellout of the 40% stake by 3M will only complete the process running for five years now," said Srinivasan.
He added: "The old Wendt GmbH team with which Wendt India worked well for 27 years is all but gone in the repeated ownership changes. Today, it's lawyers who are talking, not engineers and technocrats who worked with the joint venture all these years. Carborundum has all along ensured that Wendt (India) is well managed and well run."