Mistry family proposes share swap to exit Tatas
or the unlisted Tata group companies, the SP group has sought an independent valuation followed by payment in cash or in listed securities.Updated: Oct 30, 2020, 05:08 IST
The Shapoorji Pallonji (SP) group, the single largest shareholder in Tata Sons Ltd with an 18.4% stake, on Thursday proposed to swap its entire stake in the Tata group holding company for shares in listed entities of India’s largest conglomerate.
The SP group, controlled by the Mistry family, also demanded a pro-rata share of the Tata brand value (adjusted for net debt) in cash or in listed securities, according to a scheme of separation filed in the Supreme Court on Thursday.
For the unlisted Tata group companies, the SP group has sought an independent valuation followed by payment in cash or in listed securities.
“A selective reduction of capital by extinguishing shares of Tata Sons held by minority shareholders by swapping them with shares of listed companies (say Tata Consultancy Services) would be a simple solution of providing liquidity to Tata companies and fair compensation for the SP group,” said the application filed in the court.
The move by Mistry group to seek a cashless settlement marks a departure from its earlier stance of considering accepting staggered payments from Tata Sons over a period of time.
The proposed arrangement will help reduce the possibility of any additional debt on Tata group, the Mistry family said.
Mint had reported on September 29 the Mistry family is expected to share the details of the offer in the Supreme Court, making it part of the plea for relief it is seeking from the court in a minority shareholder oppression case. The next hearing of the case is on November 3.
While Tata Sons did not immediately respond to requests for comment, a person close to the group said the terms offered may not be entirely acceptable. “The management and the legal teams are currently examining the settlement application. But this is vastly different from the initial stated intent of complete separation from Tata group. This sort of arrangement would, in fact, give the Mistry family, which is the single largest shareholder in Tata Sons, more say in the listed companies by virtue of their shareholding,” said this person, declining to be named.
“The most contentious issue in the Mistry offer is likely to be the proposed splitting of promoter stake in Tata Consultancy Services (TCS), which is the most valuable company in the Tata stable and enduring source of capital for Tata Sons,’’ said a second person, a former Tata Sons official.
On September 22, the Mistry family, which is fighting several court cases with the Tata group, said that a separation from the Tata group is necessary due to the potential impact this continuing litigation could have on livelihoods and the economy. For this, the family said it was crucial that an early resolution be reached to arrive at an equitable solution, reflecting the value of the underlying tangible and intangible assets.
The statement followed a protracted legal battle between the two groups, which started in December 2016, after Cyrus Mistry was ousted as chairman of Tata Sons in October that year. In December 2019, the National Company Law Appellate Tribunal ruled in favour of Mistry firms.
The final straw that pushed the Mistry firms to seek a separation came on September 5, when Tata Sons objected to the SP group’s move to pledge its stake in the Tata group holding company with lenders to meet its debt obligations.
According to analysts, a complete buyout of Mistry family’s stake would require Tata Sons to make an upfront cash payment to the tune of ₹1.75 trillion, which may add a significant debt burden on the Tata group.
“While the SP group’s structure reduces the cash burden for Tata Sons, swapping the shares with those of the listed companies only reverses what Tata Sons has been trying to accomplish over the past 24 months: to shore up equity and reduce cross-holdings in the operating subsidiaries. But having decided to part ways, it is up to both groups to work together to carve out a sensible exit in the interest of all stakeholders,” said Hetal Dalal, chief operating officer, Institutional Investor Advisory Services.