In 2016, Cyrus Mistry was removed from his chairman post of the Tata Sons company. The move initiated a battle within the company. The last four years have seen several court cases involving the Mistry family, the Tata group, and Tata board members, including company petitions suing for damages, defamation suits, and writ petitions.
Now, it is rumored that the whole of Shapoorji Pallonji (SP) Group is on its way out. The SP Group has issued a statement on Tuesday where they said that a separation between the two groups is the best solution for both the groups.
However, it has not yet been decided how the group would untangle themselves. Although, we can easily presume that this separation would be a long process.
The SP Group estimates that they have an 18.4 percent stake in the Tata Sons. They calculate the value of their 18.4 percent stake to be worth 1.84 trillion dollars. The calculation has been done factoring in the value of the underlying operating companies, as well as the value of the Tata brand. However, Tata Group will definitely try to reduce the valuation. They would throw in debt, holding company discounts to drive the valuation down. The SP Group is also in need of cash, which might work in the favor of the Tatas during the deal. Also, there is hardly any market for unlisted Tata Sons shares, this would mean that the SP Group won’t be able to sell the stake of the company to outsiders providing the Tata group an advantage during the negotiations.
News agency Mint reported the head of research at a multinational brokerage as he said, “The primary hope for the seller is that the famed ‘values’ of the Tata Group will help them get a somewhat fair deal. With most other Indian promoter groups, the hope of getting a fair deal in such a situation would be very low.”
Breaking off their links with the SP Group might be beneficial for the Tata Group. They have not been able to generate decent returns in the last few years. Hence, they are miles behind their once close competitor Reliance Industries. This would also reduce problems inside the company and now they will be able to focus largely on their operating companies.
The deal might see Tata lose a major chunk of their holdings in Tata Consultancy Services (TCS). The departure of SP Group would also leave Tata Group with reduced financial flexibility alongside legacy problems.
“The Group will no longer be able to stay hinged on TCS’ performance—other companies of the Group will have to perform, or in some instances, perish. The performance pressures will likely drive cultural change: one that is tougher and more commercial,” Institutional Investor Advisory Services (IIAS) said in a note, that was later reported by Mint.
During the last four years, the relation between the groups had soured. Several complaints have been filed against the Tata Sons, by the Mistry family. They have accused them of tax evasion and informed the tax department. They also complained to SEBI about insider trading in Tata listed companies. Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) are also examining allegations of malpractice at Air Asia.
Parting of ways would definitely be beneficial for the Tata Sons, as this would mean that the SP Group would have to take back their accusations. The main complaint that was filed by the Mistry family was that of oppression of minority shareholders and mismanagement under section 241 and 242 of the Companies Act 2013. The complaint was filed via petition in the National Company Law Tribunal (NCLT) in December. Currently, the matter is under the review of the Supreme Court. However, according to the law, the company must hold a 10 percent stake in the company to make these allegations. Departure would mean that this allegation would not stand.
The companies that started associating 70 years ago, might find themselves in a messy situation at the end. As the end is inevitably near, we can look back to find where it all started to go wrong. There will be no doubt that all of it started to go wrong after 2012, when Cyrus Mistry, who was then only known for leading the SP Group was made Ratan Tata’s successor be the next chairman of Tata.