Updated: September 24, 2020 1:02:43 am
Cyrus Mistry’s Shapoorji Pallonji (SP) group has offered to exit Tata Sons in the wake of protracted litigation with the Tatas (express photo by Oinam Anand)
After a partnership of nearly 84 years, the Shapoorji Pallonji Mistry Group (SP) has offered to exit Tata Sons as a protracted litigation with Tatas has affected the business expansion plans of the SP Group, which has a debt burden of more of Rs 30,000 crore.
The market value of SP Group’s stake in Tata Group’s publicly traded entities is estimated at more than Rs 148,000 crore, based on the market capitalization of all publicly traded group companies. It remains to be seen how the Tatas will raise the cash to acquire the SP Group stake.
What is the last case about?
Earlier this month, Tata Sons filed a motion with the Supreme Court that sought to prevent SP Group firms from raising capital against the security of their stake in Tata Sons. The Tatas argued that the statutes (AoA) stipulate that shares cannot change hands, even to lenders or other parties, and the right of first refusal rests with Tata Sons. The SP Group planned to raise funds for the real estate expansion by pledging shares in Tata Sons. Tatas and the SP Group have been waging several legal battles since Cyrus Mistry was removed as president of Tata Sons four years ago.
In the Supreme Court on Tuesday, the SP Group said that “a separation from the Tata Group is necessary due to the potential impact this ongoing litigation could have on livelihoods and the economy.” The Tata Group is open to purchasing the shares of Tata Sons held by the SP Group to assist in the latter’s fundraising efforts. The Supreme Court prevented SP Group from transferring or pledging shares of Tata Sons.
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When did SP Group acquire a stake in Tata Sons?
Shapoorji Pallonji Mistry, Cyrus’s grandfather, purchased a 12.5% stake in Tata Sons in 1936 from the heirs of FE Dinshaw, a close friend and partner of Tata. Following the issuance of rights in 1996, the share rose to 18.5%. The Tata and Mistry families have maintained cordial relationships that have extended to marital ties over the years: Ratan Tata’s half-brother, Noel Tata, is married to Cyrus’s sister, Aloo.
How much does SP Group own in Tata Sons?
It owns an 18.37% stake in Tata Sons, the holding company of the Tata Group, while the majority of 66% is controlled by the Tata Trusts headed by Ratan Tata. While the total market capitalization of 17 Tata Group listed entities amounts to Rs 12.96 lakh crore, the valuation of SP Group’s stakes in listed entities of Tata Group companies amounts to around Rs 1.48 lakh crore. Given that Tata Sons is also the holding company for unlisted entities of the Tata Group, the SP Group would also have a stake in their valuation; this will have to be solved separately.
Who can buy the SP Group share?
While SP Group has said that its separation from the Tata Group is necessary, the latter has said that it is willing to buy the former’s stake. It is known with certainty that the Tata Sons bylaws state that if any Tata Sons shareholder wants to sell their shares, they must first offer them to Tata Sons. Tata Sons will then decide on a fair market value and offer it.
How easy will it be for Tata Group to buy this stake?
Investment bankers and finance experts say that the Tata Group’s offer to buy back SP Group shares involves several levels of complications. The first issue that will emerge will be the assessment agreed by both parties. Another problem is that over the next month, the Tata Group will have to come up with a financing plan to show how it will finance that acquisition and what it will place as a lien on that loan.
“With the exception of TCS, not many companies in the Tata Group are in good shape, especially their steel, auto and energy businesses that have large debt,” said an investment banker who declined to be named.
On the other hand, if the Tata Group plans to attract some global investors to buy these shares, market participants say that such investors would want to know how Tata Sons would provide them with an outlet 7-10 years later, as Tata Sons is an unlisted entity. .
When was Cyrus Mistry removed as president of Tata Sons?
On October 24, 2016, the Tata Sons board removed Cyrus Mistry as president, nearly four years after he took office. Mistry, who was a director of the board, had been named group vice president in 2011 and then promoted to president in 2012. Mistry made several changes in business practices, resulting in increased capital expenditures but decreased returns to shareholders. His proposed sale of the Tata Steel plant in Port Talbot in the UK was considered to undermine the goodwill earned by Tata abroad. A dispute with Japan’s Docomo Group, problems at Air Asia and Tata Motors, and some acquisitions allegedly upset Ratan Tata.
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