The Shapoorji Pallonji Group has proposed to reduce its stake in Tata Sons in exchange for shares in listed Tata companies.

 Mistry formally seeks separation
Money Tata vs Mistry Thursday, October 29, 2020 - 18:20

The Shapoorji Pallonji Group has formally sought separation from the Tatas, in an affidavit filed in the Supreme Court. In its filings, the SP group has staked 18.37% claim in the Tata group, the value of which is pegged at Rs 1.75 lakh crore. It has also sought a share in Tata’s listed assets and a pro-rata share of the brand. The SP group has essentially proposed to reduce its stake in Tata Sons in exchange for shares in listed Tata companies. 

The SP group has said that Tata Sons is effectively a two-group company, with the Tata Group comprising Tata Trusts, Tata family members and Tata companies holding around 81.6% of the equity share capital, and the Mistry family owning the remainder — 18.37%.

“Disputes over valuation can be eliminated by doing a pro-rata split of listed assets (share price value is known) and pro-rata share of the Brand (Brand valuation already done by Tata and published). A neutral third-party valuation can be done for the unlisted assets adjusted for net debt (i.e. debt less cash),” it said in a statement.

Detailing its proposal of a scheme of separation, the SP Group has asked that as a non-cash settlement, it be given pro-rata shares in listed entities of the Tata Group where Tata Sons currently owns a stake.

A pro-rata share would mean that the SP Group would be given a fair share in Tata’s assets based on its share in the entire Tata group (18.37%). 

“For example, 72% of Tata Consultancy Services Ltd. (TCS) is owned by Tata Sons. SP Group’s ownership of 18.37% translates to 13.22% shareholding of TCS (valued at ~ Rs. 1,35,000 crore at present market capitalisation of TCS),” it explained.

In cases where Tata Sons doesn’t want to dilute its stake in certain companies, the SP Group proposed that it be given the value of those shares either in cash or as TCS stock.  

The value of listed companies would be based on the last traded price which is published daily, while the value of the brand would be as per the latest valuation report done by Tatas.

For unlisted shares, it said that a third-party valuer selected by both sides can do an expedited valuation, which can be settled in cash or in listed securities, or in both.

According to the SP Group, such a scheme separation of Tata’s assets and liabilities would be the ‘fair and equitable solution to all stakeholders’. It also said that a largely non-cash settlement would ease pressure on Tata to raise a large quantum of debt.

Through SP Group’s proposed scheme of separation, it said that Tata Sons would continue to have control over the underlying assets, while also retaining over 51% stake in Tata Consultancy Services (TCS).

It also claimed that this would be quicker to implement with minimal disruption to the operations of Tata companies.

The formal submission comes a month after the SP group announced that it wishes to separate from the Tata group, bringing an end to 70 years of business relationship between both business conglomerates. The Mistry family and Tatas have been locked in a legal battle ever since Cyrus Mistry was unceremoniously ousted as the Executive Chairman of Tata Sons in 2016. Various allegations were made by Mistry against Ratan Tata and the group of oppression and mismanagement.

As part of the legal battle, Tata Sons had also recently offered to buy out Shapoorji Pallonji group's stake in the holding company.

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