The battle for control of the Tata empire is likely to intensify in the coming weeks as the group braces to face the possibility of more support for ousted chairman Cyrus Mistry from the boards of key group companies, similar to the way independent directors of Indian Hotels endorsed him last week.
The Tatas are looking at all options to back their decision to replace Mistry at group companies and are not ruling out seeking shareholders’ support.
This new stance of Bombay House is a marked departure from that till last week when there was the willingness to wait and expect Mistry to voluntarily step down from the chairman’s post at group companies.
According to people familiar with the developments, the change may have been prompted by the unexpected endorsement of support for Mistry’s leadership by independent directors of Indian Hotels last week, reportedly proposed by Indian Hotels MD and CEO Rakesh Sarna, who had been appointed by Mistry.
The boards of at least two large group companies are meeting soon --- Tata Steel on November 11 and Tata Motors on November 14. A show of support for Mistry at these companies can dilute the stances of Tata Sons and principal shareholder Tata Trusts.
The Tata group is marshalling support for its decision to replace Mistry. According to informed sources in Bombay House, the headquarters of the Tata group, “the group has all along expected Mistry to step down from the chairman’s post at group companies. Now that the trend is beginning to look different, the group will take all steps required to bring the process to its logical conclusion, which could also include seeking shareholder support.”
A Tata Sons spokesperson did not comment on queries to verify whether such a stance by the Tatas is being explored. If it goes ahead, it could mark the beginning of an aggressive battle for control of the $103 billion Tata Group.
“It will be tough for any move to oust Mistry from the chairman post of Tata Motors. By law, while the board can vote to replace him as chairman, to remove him as director it will need shareholder approval. That can be a long-drawn cumbersome process,” says Sandeep Parekh, founder of Finsec Law Advisors and former executive director at Sebi.
Mistry’s support from independent directors came at a time when Indian Hotels, owner of marquee properties such as the Taj group of hotels, returned to profitability. Mistry’s move to improve efficiencies, sell non-core assets such as the Taj Boston in the US and to raise questions on a costly acquisition taken before he took charge, had irked sections within Tata Sons and was widely seen as one of the factors that led to his ouster.
While support at Indian Hotels came from independent directors – stalwarts such as HDFC chairman Deepak Parekh and Hindustan Unilever former chairman Keki Dadiseth vouched for his competence – there are unconfirmed reports of a similar backing from a non-executive section of the Tata Motors board also.
The $42 billion automobile company that also owns Jaguar and Land Rover, has many prominent professionals as independent directors, including industrialist Nusli Wadia, veteran technocrat Raghunath Mashelkar, former IDFC founder Nasser Munjee, Eicher group chairman emeritus Subodh Bhargava, former bureaucrat Vinesh Jairath and financial services professional Falguni Nayar.
Tata Motors has already officially admitted that the Nano - a brainchild of interim chairman Ratan Tata – is a loss making product and that the company is taking steps to “refocusing its strategy on growing and attractive segments of passenger vehicle market…”
The statement affirms Mistry’s charges made after his ouster that the Nano project is loss making and should be shut down. Mistry had also said that Tata Steel’s challenges include potential impairments of $10 billion, which has since been countered by the steelmaker that the financials are in line with prudent accounting standards.