Suzuki Motor Corporation's decision to run its Gujarat plant as a 100 percent owned subsidiary rather than as a unit of its majority-owned (56 percent) listed entity, Maruti Suzuki Ltd, <a href=http://www.business-standard.com/article/companies/suzuki-s-move-to-run-gujarat-plant-faces-a-storm-114012800966_1.html>has jolted the markets.</a> The share prices headed straight south yesterday (28 January) when it was announced that Suzuki would make the cars in Gujarat under a new company, Suzuki Motors Gujarat Pvt Ltd. The idea is to sell the cars at cost price plus royalty to the listed company to market. The listed company will thus make only marketing margins. Several questions loom. Is this good news or bad news for Maruti shareholders? Why did Suzuki do this when it could have instead chosen to take Maruti Suzuki private by making it a 100 percent subsidiary after making an open offer? Is this good strategy even for Suzuki, since it will now come under the taxman's scrutiny on transfer pricing? Is Suzuki going the multinational way, where almost all of them have now set up 100 percent subsidiaries (P&amp;G, Pfizer, <i>et al</i>) in addition to majority-owned listed entities to launch new products? Are the analysts who have raised corporate governance issues about this gambit right? Here are some key points that will provide some, but not all, of the answers.
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