In a statement of more than 700 words accusing the Tatas of “business decisions that destroy value” and of “oppressive” and “vindictive” actions aimed at “suppressing and inflicting irreparable harm to Grupo SP,” Mistrys said that “the family believes that a separation of interests would better benefit all stakeholder groups, ”and that it was“ crucial that an early resolution be reached to reach a fair and equitable solution that reflects the value of the underlying tangible and intangible assets ”.
While there has been talk, ever since Cyrus Mistry was ousted as Tata Sons chairman in 2016, of a separation, the last straw appears to have been The Supreme CourtOrder that restricts the family’s ability to raise fresh funds against their participation in Tata Sons.
But the separation will not be easy at all, mainly because the Mistrys set the value of their stake at around 1.78 lakh crore rupees, while a 2016 valuation of Tata Sons by renowned chartered accountant YH Malegam put it at roughly one. third, Rs 57,600 crore. Plus, for the Tatas, raising money to buy the Mistrys could be challenging, especially at a time like this.
Tata Sons will have to work out the details of the share purchase proposal, including the valuation, source of funding, and deal structure amidst financial difficulties caused by the pandemic and your debt obligations. Tata Trusts, the majority shareholder of Tata Sons with a 66% stake, is prohibited by law from investing in stocks. Tata Sons may have to turn to sovereign wealth funds and other long-term investors for a possible fund pooling to buy the Mistrys.
While the Mistrys have not offered any details on the process of such a separation, it is expected that it will be driven by the court, as the two parties have explained their intentions to the SC. If the Mistrys need funds to pay off the debt, Tata Sons is willing to buy their shares, the Tata group’s holding company told the high court on Tuesday. SP argued that if a sale notice is given, the shares would have to be valued at fair market value.
Malegam had valued Tata Sons at Rs 3.14 lakh crore and, proportionally, Mistry’s 18.4% stake at approximately Rs 57,600 crore. But SP’s court filings revealed a valuation of more than Rs 1 lakh crore for its Tata Sons shares. The family estimates that Tata Sons, which owns shares in unlisted and publicly traded companies including TCS, and also the Tata brand, is currently worth Rs 9.7 lakh crore, assigning its stake a value of Rs 1.78 lakh crore.
The Mistry controlled Shapoorji Pallonji Group has been looking to raise Rs 11,000 crore by pledging Tata Sons shares to overcome the financial crisis caused by the Covid pandemic after economic activity around the world came to a standstill earlier this fiscal year. Tata Sons opposed this measure in the SC, which on Tuesday restricted the pledge or sale of Tata shares until October 28, when it begins to hear final arguments on the matter.
The separation, if it occurs, will end a relationship between the two Parsi business families dating back to 1965.
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