The rebel faction led by ousted Chairman Cyrus Mistry of the Shapoorji Pallonji Group has moved the Supreme Court to end a seven-decade association with the Tata Group.
Ever since Cyrus Mistry was sacked as the Tata Group chairman in October 2016, the gulf between Shapoorji Pallonji (SP) Group and Tata Group has been widening. The situation deteriorated in subsequent years. The death-knell sounded on October 29, 2020, when the SP Group revealed that it had moved the Supreme Court to end its seven-decade long association with the Tata Group. Tata Sons are yet to give their reaction over the development.
Termed as the split of the century, the breakup can be a big blow for Tata Sons, if not a death-knell to their business.
The reason for the nightmarish experience for Tata Sons is the extremely high value of SP Group which has valued its holdings at ₹1.75 lakh crore. However big the Tata Sons conglomerate might be, arranging such a massive amount will be an uphill talks for the Tatas.
Watch: The Ratan Tata – Cyrus Mistry Fallout
How Did SP Group Evaluate Itself?
The SP Group said in a statement quoting from its submission to the Supreme Court: “Tata Sons is effectively a two-group company, with the Tata Group comprising Tata Trusts, Tata family members and Tata companies holding 81.6% of the equity share capital, and the Mistry family owning the balance 18.37%.” SP Group’s 18.37% stake is far lesser than the Tata Sons, but converted into liquidity, it becomes a mammoth ₹1,75,000 crore.
It has to be noted here, that the value of the company has been done by the SP Group. Tata Sons are yet to come up with a monetary figure, so there’s speculation that they could claim to have found the SP Group’s valuation claims overestimated.
The Tata Side Of The Story
SP Group says that the dispute over valuation can be done away with by doing a pro-rata split of listed assets (share price value is known) and pro-rata share of brand (brand valuation already done by Tata and published). In addition to it, a third-party valuation can be done for the unlisted assets adjusted for net debt.
As a non-cash settlement, the SP Group sought pro-rata shares in listed Tata entities where Tata Sons currently owns stake. “For example, while Tatas own 72% of TCS, the SP Group’s ownership of 18.37% in Tata Sons translates to 13.22% shareholding of TCS, which is worth ₹1,35,000 crore at present market capitalisation,” as per the statement. Pro-rata share of brand value adjusted for net debt can be settled in cash and/or in listed securities, the statement said.
The statement further read, “For the unlisted companies, an expedited valuation can be done with a valuer selected by both sides. This can be settled in cash and/or in listed securities.” SP Group’s association with Tata Sons goes back to 1965 when it acquired 18% stake in Tata Sons for just ₹69 crore. The stake has ballooned by 2000 times ever since. As per SP Group’s court documents, the valuation has now increased to ₹1.5 trillion.
SP Group acquired 18% stake in Tata Sons for just ₹69 crore in 1969. The stake has ballooned by 2000 times ever since, standing at ₹1.5 trillion, as per the SP Group.
More Than An Exit
The root of the current conflict lies in decisions taken when Ratan Tata decided to step down. The rift started with the exit of Cyrus Mistry as Tata Sons chairman, but it continued in the form of legal battles. In July 2018, the Mumbai National Company Law Tribunal had dismissed Mistry’s petition that minority investors were oppressed. In 2019, the National Company Law Appellate Tribunal gave verdict in Mistry’s favor. Earlier this month, there were reports of SP group’s allegations that the presence of two Tata group companies in the winning bid for the redevelopment plan of Parliament was a violation of Central Vigilance Commission guidelines.
However, the writing was on the wall on September 22 itself when the SP Group said it would exit Tata Sons as a minority shareholder. SP Group’s statement to the Supreme Court was just a manifestation of the September announcement.