A plan to divide the Murugappa Group equally among three family groups that’s been over two years in the making has got stuck, said people with knowledge of the matter. The Murugappa Chettiar family had been negotiating an amicable split of the diversified business empire with over USD 9 billion in revenue in FY23 after five generations of working together over more than a century, they said.
The much-celebrated turnaround of CG Power within four years of its takeover by group company Tube Investments of India (TII) has become a key bone of contention among different family groups that make up the promoter group. Shares of four Murugappa group companies, including Wendt India and Shanti Gears, yielded over a 50% return in CY23.
But it’s the meteoric 15-fold jump in the share price of CG Power after the TII buyout that has grabbed the spotlight. Another standout has been the performance of Cholamandalam Investment and Finance Co. Ltd, the group’s principal financial services arm, a listed company with over INR 1 lakh crore market value.
The turbocharged value appreciation of a handful of group companies relative to others has led to serious differences among at least two of the three factions of the extended family. The argument is over how three equal groups can be carved out of the current corporate structure–collectively owned by seven branches of the Murugappa family through family holding company Ambadi Investment, which owns shares of various companies–without revising the terms of an older family agreement that has been in place for some time. ET could not independently verify the exact date of that agreement. Murugappa is ranked 10th in the 2024 Barclays Private Clients Hurun India Most Valuable Family Businesses.
The 124-year-old group has close to 30 companies, a third of which are listed, spanning sugar, fertilisers, abrasives, bicycles, polymers, financial services and engineering. The family settlement was modelled on the lines of the TVS Group separation plan. Under this, the family faction that held the largest economic interest in each of the companies bought out the cross holdings of the other groups.
The latest disagreement comes within a year of the settlement between Valli Arunachalam, the eldest daughter of the late MV Murugappan, and the rest of the family after a protracted feud, casting a shadow on the media-shy group.
The Factions
One faction is led by MA Arun Alagappan, executive chairman of Coromandel International, along with second cousin Arunachalam Vellayan, chairman emeritus of EID Parry. It’s questioning the price levels previously agreed upon for swapping or exchanging shares of listed group entities among family factions for an equitable three-way split following the surge in the stock prices of companies such as CG Power, its parent TII and even Cholamandalam Finance. Coromandel International, formerly Coromandel Fertilisers, is the second largest manufacturer and marketer of phosphatic fertiliser in India.
All three companies are steered by Vellayan Subbiah, executive vice-chairman of TII, who is also chairman of Cholamandalam Investment. He and his second cousin Arun Murugappan, executive chairman of TII, regard any upward revision from the agreed share-swap price and formula unacceptable. Together they form the second group.
Brothers MM Murugappan and M Muthaiah Venkatachalam constitute the third group. Between them they oversee Carborundum Universal Ltd, Cholamandalam MS General Insurance Co., Cholamandalam Financial Holdings and EID Parry as their chairmen. According to two group sources, the duo are also believed to be aligned to Vellayan Subbiah and Arun Murugappan. But this could not be independently verified.
Typically, business families divide their businesses after independent valuations. Even if share swaps do not lead to an equal split, the gaps are bridged by cash payouts. Most Murugappa group watchers are of the view that Subbiah, a fourth-generation member of the family, is a star performer among the various family members. The former IIT Madras and University of Michigan alumnus is a McKinsey consultant-turned-entrepreneur. He’s largely credited with transforming fraud-hit CG Power into a growth engine after taking over, making it debt-free in FY22, much ahead of a five-year timeline. It has commenced building India’s first outsourced semiconductor testing facility.
TII, the group’s engineering arm, has ventured into new areas such as green mobility and contract manufacturing for the pharmaceutical and medical segments as well as specialised chemistry solutions. Since taking over the leadership of the 70-year-old manufacturing flagship, Subbiah helped TII’s share price grow 13 times until June 2024. He also helped Cholamandalam Investment navigate its way out of turbulence after the global financial crisis and increased its market capitalisation 60 times over the course of his tenure. The group’s top three listed companies by market cap–Cholamandalam Investment, CG Power and TII–are all overseen by him.
However, some group insiders insist Arun Alagappan, his father MA Alagappan and A Vellayan also played a major role in the turnaround of Cholamandalam Investment after the exit of DBS, Singapore.
Despite repeated attempts, A Vellayan, Arun Alagappan and Arun Murugappan were unavailable for comment. A spokesperson for the group told ET it has no comment to make.
“Vellayan Subbiah has turned around TII, CG Power and Chola. To seek a revision in share swap is a breach of an agreement,” said a family associate close to the faction on condition of anonymity as the negotiations are still in private domain. “It’s like punishing excellence.”
Others working closely with the other camp are of the opinion that every branch of the family has at different points in history had a role to play in the success of each of the companies, especially the bigger ones. Earlier, all the family members were put in charge on a rotational basis as per the old family agreement.
“TII, Chola Finance were not built by one or two family members,” said an executive known to the family for decades. “Their foundations were built on collective endeavours of all branches of the extended family and today they have scaled new heights only because of the solid groundwork that was done before. You cannot separate past from present.”
Family Charter
The Murugappa Group follows a family constitution. A council handles all family issues and resolves shareholder disputes.
Since late 2020, the Murugappa Group has agreed to move to a corporate structure that separates management and ownership. The first leg of this transition has been largely completed with professional corporate boards, with only two family members in each, overseeing business decisions.
Work on the ownership split could only start after the settlement with Valli Arunachalam, executives said. She had questioned the practice of Ambadi Investment board seats going only to male members of the family. She said six branches of the family were represented on the board, except hers. She sought a board seat to represent her family by virtue of its 8% ownership of the holding company. She remains a shareholder and part of the promoter group in various Murugappa entities.
After the final separation of the various group companies among the three principal family groups, different holding structures and business trusts are expected to be created.
“Over generations, the Murugappa empire has become a confederation of cousins,” said another senior executive close to the family. “The group is committed to certain traditional values, which include fair and equitable separation to ensure smooth management and business continuity.”
