SP is seeking an exit from the holding company of India’s largest conglomerate after a seven-decade relationship has turned sour in the past four years.
According to Tuesday’s presentation, Tata Sons is worth Rs 3.8-4.3 lakh crore and its valuation of SP’s stake is 55-61% lower than the latter’s own calculations. It is unclear whether Tata Sons has considered SP’s proportional share of the Tata brand value, which was Rs 1.46 lakh crore, according to the Brand Finance 2020 ranking. SP, as part of its proposed separation, had suggested exchanging its stake in Tata Sons for shares worth Rs 1.78 crore lakh in Tata’s listed companies.
The valuation gap marks the beginning of another showdown between the two revered Parsi groups, who have been locked in a legal battle since 2016, when SP scion Cyrus Mistry was removed from the post of chairman of Tata Sons in a coup de Been in the boardroom.
Earlier this year, SP tried to compromise its stake in Tata Sons to raise money amid Covid pandemic, but the attempt was blocked by the holding company moving the higher court.
Tata Sons told the SC that he was open to buying SP shares if the latter needed funds. In September, SP announced its decision to exit Tata Sons upon realizing that it was stuck with an investment that could not be easily monetized due to restrictive share transfer clauses. However, a protracted battle will not benefit SP, as it is struggling with funds for its construction and real estate businesses.
Tata Sons’ latest valuation, based on its estimate of SP’s stake, is not far from the holding company’s 2016 value of Rs 3.14 lakh crore as calculated by renowned public accountant YH Malegam. Tata Sons officials have been citing the applicability of illiquidity discounts to the holding company’s valuation.
On Tuesday, Tata Sons also argued before the Supreme Court that while the law empowers a judicial body to appoint and remove a director from a company’s board of directors, its power under section 242 is “nuanced and purposeful.” It is the controlling shareholder who has the right to make appointments to the company’s board of directors.
The National Commercial Law Appeals Court (NCLAT) had removed N Chandrasekaran from the position of president at Tata Sons, who was appointed after Mistry’s departure. the NCLAT he had reinstated Mistry as chairman of the holding company. Tata Sons argued that under “normal corporate democracy,” a shareholder with an 18.4% stake could not get a single seat on the company’s board of directors, while a controlling shareholder (Tata trusts, which owns 68% of Tata Sons) could fill the board with its nominees.
Tata Sons further said that Mistry was not named chairman under any minority shareholder rights. But by reinstalling him, the NCLAT went against the wishes of the majority, giving the minority the reins of the company, he added.
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