India's second-largest motorcycle maker, Bajaj Auto Ltd., today approved the proposed demerger scheme, splitting the group into three separate entities with the creation of two new companies.

According to the scheme, Bajaj Auto's various businesses would be demerged into two newly incorporated subsidiaries - Bajaj Holdings and Investment (BHIL) and Bajaj Finserv (BFL).

As part of the scheme, Bajaj Holdings and Investment will become the new auto company, renamed Bajaj Auto. The existing Bajaj Auto will be renamed Bajaj Holdings and Investment, and will act as the primary investment company.

Bajaj Investments will hold Rs 6,000 crore in fixed income securities. The holding company will hold 30 per cent in both subsidiaries.

After the demerger, shareholders will get one share of Bajaj Holdings and Bajaj Finserv for every one held. The face value of Bajaj Finserv will be Rs 5 and that of Bajaj Holdings will be Rs 10. All transfers will take place at book value and all entities are zero debt companies.

The auto business will be transferred to Bajaj Holdings. Bajaj Auto, consequently, will be renamed Bajaj Holdings. Rs 1,500 crore cash will be transferred to Bajaj Holdings. The new Bajaj Holdings will get Rs 3,700 crore cash or cash equivalents. Besides, it will get the holdings of group companies, worth Rs 2,700 crore. Its share capital will be Rs 150 crore.

The wind power and insurance and financial services will go to the Rs 800 crore worth Bajaj Finserv. This consumer financing company will grow at over 40 per cent.

Post restructuring, there will be no change in management, said Rahul Bajaj. The new Bajaj Auto board will remain largely the same as of now, he added. Elder son Rajiv Bajaj will continue to be MD and CEO and younger son Sanjiv Bajaj will continue as ED. He will also be in charge of financial and international operations and Bajaj Finserv.

Both new companies are to have a four-member board comprising Rahul Bajaj, Madhur Bajaj, Sanjiv Bajaj and Rajiv Bajaj.

Sanjiv Bajaj said the demerger process would be completed by the end of 2007. The insurance company valuations have not been factored into overall valuations.

Post the demerger announcement Bajaj Auto shares ended Thursday at 2,419 down 261.05 points, or 9.74 per cent. The scheme is subject to approval from shareholders and stock exchanges.