Ratan Tata wants to buy out Shapoorji Pallonji Mistry stake in Tata Sons; high hopes?
Given the escalation of tensions, the stage seems to be set not for an amicable solution but for a big corporate battle
Ratan Tata is exploring options to buy out the 18.4 percent stake the Shapoorji Pallonji group has in Tata Sons, according to a report in Bloomberg. Tata Sons is the holding company for the Tata group and Tata Trusts hold 66 percent stake.
The move comes at a time when the tension between both business groups have arisen after the ouster of Cyrus Mistry, son of Shapoorji Pallonji Mistry, as chairman of Tata Sons earlier this week in a boardroom coup.
The report further says that the Tata group has begun talks with sovereign wealth funds and other long-term investors to explore possibility of tie-ups for a buyout.
The talks are part of the Tata group's efforts to prepare for "various scenarios", said the report.
Anyways, it remains to be seen whether the Shapoorji Pallonji group would want to sell their stake in the Tata Group, at all.
The same Bloomberg report quotes Paras Bothra, vice president of equity research, Ashika Stock Broking, as saying: “It’s not going to happen so easily as Mistry may not give in without a fight.” Bothra nonetheless says that if such a deal can be worked out, it would be a good move as that will end the uncertainty surrounding the group.
However, this move by the Tatas to reach out to sovereign wealth funds is based on the assumption that Mistry and the Shapoorji Pallonji family would want to sell off their stake in the Group, says Seema Mahajan, Director, Centre of Family Business and Entrepreneurship, Narsee Monjee Institute of Management Studies (NMIMS).
With no credible reason give out yet by the Tata Group for the ouster of Cyrus Mistry as the chairman, the handling of the Mistry issue is `unprofessional' and `not in keeping with the standards' everyone has expected from the Tata Group, said Mahajan. She said that when the Tata Trust decided to appoint Mistry as the chairman, they had to allow for new ideas and new approaches to business and not expect the old tried-and-tested methods to continue under a new head. "What is the difference between a family-owned business and Tata Sons? By wanting someone at the helm to continue what the business decisions of Ratan Tata, inspite of the Nano being a failed venture, for instance, the Tata Sons board want the Group to be run like a family-owned business. This decision by the Board and Ratan Tata just goes to show that they are not receptive to changes," said Mahajan.
With both sides levelling allegations and counter allegations, the two groups have already queered the pitch for a high profile battle.
The problems started with the first move on part of Tata Sons board to oust Cyrus Mistry in a sudden move on Monday in a full-strength board meeting at Bombay House. According to media reports, a discussion about the chairman was not even listed in the agenda.
A terse statement from Tata Sons said Cyrus Mistry had been replaced with Ratan Tata, who had in 2012 stepped down after he turned 75 years old, a retirement age that Tata himself set up and adhered to.
Predictably, the action of throwing out Mistry led to a bitter war of words with Mistry shooting off a letter to the board terming his ouster 'unique in the annals of corporate history'.
Mistry also hit out the Tatas where it hurts the most by listing out the failures of Ratan Tata in the capacity as his predecessor of the Group.
Mistry said much of the problems of the group had been inherited and not of his own making. He said the loss-making Nano project is being kept alive only for emotional reasons. He also revealed a few fraudulent transactions that may come to haunt the Tatas for some time now.
The Tatas hit back saying Mistry was sacked since he had lost the confidence of the Tata Trusts. They also defended the business decisions taken by Ratan Tata.
Both the camps have also arranged lawyers in anticipation of a long-running legal battle.
Given the escalation of tensions, the stage seems to be set for a discordant solution but for a big corporate battle.
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