For unlisted companies of Tata group, the SP group has sought independent valuation also payable in cash and or in listed securities
Mumbai: Mistry family controlled Shapoorji Pallonji (SP) group, which owns 18.4% stake in Tata Sons, on Thursday filed a scheme of separation in Supreme Court proposing to swap its entire holding in the group holding company for equivalent shares in listed entities of Tata group and along with a pro-rata share of Tata brand value (adjusted for net debt against) payable by cash or listed securities. For unlisted companies of Tata group, the SP group has sought independent valuation also payable in cash and or in listed securities. "A selective reduction of capital by extinguishing shares of Tata Sons held by minority shareholders by swapping them with shares of listed companies (say Tata Consultancy Services) would be a simple solution of providing liquidity to Tata companies and fair compensation for the SP group," said SP group in the application filed in Supreme Court, parts of which were reviewed by Mint.
According to people close to the SP group, the move by Mistry group to seek cashless settlement marks a departure from an earlier stance where it was considering accepting staggered payments from Tata Sons over an extended period of time. The arrangement will help reduce the possibility of any additional debt on Tata group, the Mistry family said in the application filed in the Supreme Court. Mint had reported on September 29, that the Mistry family is expected to share the details of the offer in the Supreme Court, making it a part of the plea for relief it is seeking from the court in a minority shareholder oppression case. The next hearing of the case is scheduled on November 3.
While Tata Sons did not immediately respond to requests for comment on the settlement offer, a person close to the group said that the terms offered may not be entirely acceptable in the current form. “Management and the legal team is currently examining the settlement application. But this is vastly different from the initial stated intent of a complete separation from Tata group. This sort of arrangement would in fact give the Mistry family, which is the single largest shareholder in Tata Sons, more say in the listed companies by virtue of their shareholding," said this person declining to be named. “ The most contentious issue in the Mistry offer is likely to be the proposed splitting of promoter stake in Tata Consultancy Services ( TCS), which is the most valuable company in the Tata stable and enduring source of capital for Tata Sons'' said a second person, a former Tata Sons official.
On 22 September, the Mistry family, which is fighting several court cases with Tata Group, said that a separation from the Tata Group is necessary due to the potential impact this continuing litigation could have on livelihoods and the economy. For this, the family said that it was crucial that an early resolution be reached to arrive at a fair and equitable solution reflecting the value of the underlying tangible and intangible assets. The statement followed a long, protracted legal battle between the two groups, which started in December 2016, after Cyrus Mistry was removed from the post of chairman of Tata Sons in October of that year. In December 2019, the National Company Law Appellate Tribunal (NCLAT) ruled in the favour of Mistry firms. The final straw came on 5 September, Tatas objected to SP group’s move to pledge its Tata Sons stake with lenders to meet its debt obligations. According to analysts a complete buyout of Mistry family’s stake would require Tata Sons to make an upfront cash payment to the tune of ₹1,75,000, which in turn adds a significant debt burden on Tata group which continues to headwinds in several of its businesses. "While the SP group’s structure reduces the cash burden for Tata Sons, swapping the shares with those of the listed companies only reverses what Tata Sons has been trying to accomplish over the past 24 months – to shore up equity and reduce cross-holdings in the operating subsidiaries. But having decided to part ways, it is up to both groups to work together to carve out a sensible exit in the interest of all stakeholders," said Hetal Dalal, COO, institutional investor advisory services.