Tata Sons board was aware of exit strategy for group firms
A 10-year vision document titled 'Tata Strategy 2025', which detailed the exit strategy, was first presented to the Tata Sons board by Cyrus Mistry in June 2015
Mumbai: Cyrus Mistry presented a 10-year vision document to the board which talked about the need to reduce concentration risk for the group arising from Tata Consultancy Services Ltd (TCS) and a plan to exit some group companies, said a person close to the ousted chairman of Tata Sons Ltd.
The discussions on this strategy were minuted by the board in three meetings, this person said, rebutting accusations that Mistry and his team didn’t have a long-term vision for the group and were unilaterally moving to sell parts of the group like Tata Steel’s European business.
The 40-page strategy document titled “Tata Strategy 2025", parts of which were seen by Mint, was first presented by Mistry to the Tata Sons board in June 2015. After taking its feedback, the document was again presented with changes in December 2015 and June 2016, the person said on condition of anonymity. “The exit strategy was detailed," said this person.
“Ratan Tata and Cyrus Mistry have met more than 12 times in the past three years, discussing problems of individual companies or strategies over three-four hour long meetings. All the presentations were made to Ratan Tata and to the board of Tata Sons. They were kept informed of every decision," the person said.
In the case of Tata Steel Europe, the Tata Sons board began getting impatient that the group was not exiting the business fast enough, Bloomberg reported separately, citing an unidentified person.
In a 27 October statement, Tata Sons had said that the “Trustees of the Tata Trusts were increasingly getting concerned with the growing trust deficit" with Mistry. Ratan Tata is the chairman of Tata Trusts. A Tata Trustee has also said publicly that the trusts were not getting enough of a dividend.
According to the document, Mistry planned to raise dividend payout to Rs800 crore by 2020 and then maintain a dividend payout of between 15%-25% by 2025.
In the five years to 2020, Mistry’s vision for the group rested on six pillars. The first was turning around the group’s “legacy hotspots" such as Tata Steel Ltd’s European business, Tata Teleservices Ltd, Tata Power Co. Ltd’s Mundra project, Tata Motors Ltd’s passenger vehicle business, and Indian Hotels Company Ltd. Second, it wanted to optimize capital allocation and exit certain businesses. Third, it talked about reducing concentration risk arising from the group’s dependence on TCS—which accounted for at least 90% of Tata Sons dividends over the past couple of years—by helping other units grow faster.
The document also identified growth sectors to allocate higher capital such as financial services, consumer and retail, and defence, besides new-generation businesses such as digital. The document also details the five-year and 10-year strategy for each of the group’s individual companies. For example, at Tata Motors, Mistry suggested refreshing design of vehicles, bringing in a new platform, improving supplier performance and in-house manufacturing.
Lastly, it talked about a plan to increase Tata Sons’ shareholding in select firms to retain management control. In many of the bigger group units such as Tata Steel and Tata Motors, the promoters own only about 35%.
“The information you have is incomplete," said a Tata Sons spokesman. “A five-year strategic plan was brought to the board in a September 2016 board meeting, but that plan was not found suitable for various reasons."
The Tata Sons spokesman said high dependence on TCS, inadequate emphasis on return on capital and not enough focus on the strategic realignment of Tata Sons’ investment portfolio as reasons why the vision document was found unsuitable.
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