MUMBAI: The Pallonji Mistry family on Tuesday announced its decision to exit Tata Sons – the holding company of India’s largest conglomerate in which it is the largest minority shareholder with almost 18.4% – after a bitter and protracted four-year battle in courtrooms and outside.
In a 700-word-plus statement accusing the Tatas of “value-destructive business decisions” and of “oppressive” and “vindictive” actions aimed at “suppressing and inflicting irreparable harm to the SP Group”, the Mistrys said “the family believes that a separation of interests would best serve all stakeholder groups,” and that it was “crucial that an early resolution is reached to arrive at a fair and equitable solution reflecting the value of the underlying tangible and intangible assets.”
While there has been talk – ever since Cyrus Mistry was ousted as chairman of Tata Sons in 2016 – of a separation, the final straw appears to have been the Supreme Court’s order curtailing the family’s ability to raise fresh funds against their stake in Tata Sons.
But separation will be far from easy – primarily because the Mistrys peg the worth of their stake at around Rs 1.78 lakh crore, while a 2016 valuation of Tata Sons by renowned chartered accountant Y H Malegam estimated it at about a third – Rs 57,600 crore. Also, for the Tatas to raise money to buy out the Mistrys could be a challenge, especially at a time like this.
Tata Sons will have to work out the details of the share-purchase proposal including valuation, source of funding, and deal structure amid the financial difficulties caused by the pandemic and its debt obligations. Tata Trusts, the controlling shareholder of Tata Sons with 66% stake is restricted by law from investing in equities. Tata Sons may have to tap sovereign wealth funds and other long-term investors for a possible funding tie-up to buy out the Mistrys.
While the Mistrys haven’t offered any detail on the process of such a separation, it is expected to be court-driven as the two sides have spelt out their intentions before the SC. If the Mistrys need funds to retire debt, Tata Sons is willing to purchase their shares, the holding company of the Tata group told the apex court on Friday. SP argued that if a sale notice is given, then shares would have to be valued at fair market value.
Malegam had valued Tata Sons at Rs 31.4 lakh crore, and proportionately, the Mistry’s 18.4% stake at about Rs 57,600 crore. But SP’s court filings revealed a valuation of over Rs 1 lakh crore for its Tata Sons shares. The family estimates that Tata Sons, which owns shares in unlisted and listed companies including TCS, and as well as the Tata brand, is currently worth Rs 9.7 lakh crore, thus assigning their stake a value of Rs 1.78 lakh crore.
The Mistry-controlled Shapoorji Pallonji Group has been looking to raise Rs 11,000 crore by pledging Tata Sons shares to tide over the financial crunch caused by the Covid pandemic after economic activity across the world came to a standstill early this fiscal. This move was opposed by Tata Sons in the SC, which on Tuesday restrained pledging or selling any Tata shares until October 28, when it starts hearing final arguments in the matter.
The separation, should it take place, will bring to an end a relationship between the two Parsi business families that goes back to 1965.
