Cyrus Mistry vs Ratan Tata: Contrasting styles in investment

While Cyrus Mistry’s tenure as Tata Sons chairman was punctuated by divestments, predecessor Ratan Tata focused on acquisitions

A file photo of Ratan Tata (left) with Cyrus Mistry. Photo: PTI
A file photo of Ratan Tata (left) with Cyrus Mistry. Photo: PTI

Mumbai: Cyrus Mistry’s less than four-year reign as chairman of Tata Sons Ltd, the holding company of Tata group, will be remembered for his focus on divestments.

The approach of Mistry, 48, was in sharp contrast with that of his predecessor Ratan Tata, 78, under whom the group was one of India’s most aggressive acquirers, especially of overseas assets.

Under Ratan Tata, the group made some of the biggest acquisitions in its history, acquiring European steel maker Corus in a $12.9 billion deal in 2007 and Jaguar Land Rover for $2.3 billion in 2008. Between 2005 and 2008 alone, the group acquired more than 40 companies across various businesses such as steel, telecom, information technology, hotels and beverages, according to data on Tata group website.

To be sure, other top Indian companies too made major overseas acquisitions during the period. In 2007, Aditya Birla Group’s Hindalco Industries Ltd acquired Novelis Inc. for almost $6 billion; Oil and Natural Gas Corp. Ltd (ONGC) acquired UK-based energy firm Imperial Energy Corp. for around $2.6 billion and Suzlon acquired Germany’s Repower AG for more than $1 billion.

However, such big acquisitions became rare after the global financial crisis in 2008, as companies focused on maintaining profitability.

While some of these marque acquisitions were successful, others failed to withstand the tough business environment following the crisis. Tata Group’s acquisition of Corus was one such. Falling steel prices meant that Tata Steel Ltd and its British unit Corus performed poorly. Tata Steel continued unsuccessfully to try to turn around the company until it decided to sell all of its UK assets under Mistry in the face of a sustained slump in steel prices.

In July, Mint reported that Tata Steel Ltd had put the sale of its UK assets temporarily on hold following Britain’s vote to exit the European Union.

Apart from the steel assets sale, this year the group, under Mistry, has sold a host of assets across businesses. In August, Tata Chemicals Ltd sold its urea plant in Babrala, Uttar Pradesh, to the Indian unit of Norway-based Yara International for Rs2,670 crore.

In July, the hotels business of the group Indian Hotels Co. sold Taj Boston, one of its three US-based properties, for $125 million (about Rs840 crore).

In May, Tata Communications Ltd sold a 74% stake in its data centre business to a unit of Singapore’s Temasek Holdings for $634 million (approximately Rs4,260 crore).

To be fair, it has not all been divestments under Mistry’s watch. Companies such as Tata Power Ltd and Tata Consultancy Services Ltd have also made acquisitions in the recent years.

This year, Tata Power Ltd made a $1.4 billion acquisition of Welspun Renewables Energy Pvt. Ltd’ solar and wind energy assets of almost 1.1 GW. In 2013, TCS completed the acquisition of ALTI SA, a SAP solution provider in France.

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According to industry experts, the Tata group saw a string of divestments under Mistry because his focus was on return on capital. This drive is expected to continue even under the new chairman, they said.

“Under Mistry, the Tata group has been focusing on improving return on capital in its businesses. One would expect that drive is expected to continue going ahead and thus expect the group to keep looking at divestments,” said Vikas Khemani, president and chief executive at Edelweiss Securities Ltd.

However, Khemani added that the Tata group culture allows companies to be independently driven, so decisions on divestments will also be individual company decisions than just that of the group chairman.

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The divestment approach is not unique to the Tatas, industry experts said.

“Selling of non-core businesses and taking stock of long-term views on various businesses is part of all the large group’s strategy worldwide. Birla’s have sold MRPL (Mangalore Refineries and Petrochemicals) in the past and Raymond sold their cement business,” said Mahesh Singhi, founder and managing director of boutique investment banking firm Singhi Advisors.

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