Shapoorji Pallonji Group stakes claim in all Tata companies, seeks division

Mistry family's group claims a 13.22 per cent stake in Tata Consultancy Services and a pro-rata share of the Tata brand

In a bid to settle its four-year-old dispute with the Tatas, the Shapoorji Pallonji (SP) group has sought a pro rata division of all the Tata Sons assets based on its 18.4 per cent stake in the Tata group holding company. 

According to the terms filed with the Supreme Court, the Mistry family-led group has sought direct stakes in all the listed Tata entities, including 13.22 per cent in the group’s crown jewel, Tata Consultancy Services (TCS), and a pro rata share of the Tata brand in cash/shares in its listed firms. It has also asked for a neutral third-party valuation for all the unlisted assets adjusted for net debt.

As a non-cash settlement, the SP group said, it should be given pro rata shares in the listed entities of the Tata group where Tata Sons currently owns stakes. “For example, 72 per cent of TCS is owned by Tata Sons, and the SP group’s ownership of 18.37 per cent in Tata Sons translates to 13.22 per cent shareholding of TCS (valued at Rs  1.35 trillion at the current market capitalisation),” the SP group said in its filing.

The pro rata share of the brand value adjusted for net debt (debt minus cash and cash equivalents) can be settled in cash and/or shares in the listed securities. For the unlisted companies, an expedited valuation can be done with a valuer selected by both sides, it said. The Tata brand was valued at $20 billion in its last valuation.

The Mistry group said the “quicker to implement” settlement was a win-win deal for both sides as control would remain with Tata Sons. The Tatas would also remain the promoters of group companies and enjoy a control premium on its shareholding.

“In case Tata Sons does not want to dilute its stake in certain companies, the SP group could accept the value in either cash or TCS stock,” it said. Besides, this settlement will not increase debt for Tata Sons if it had to buy out the Mistry group’s stake in Tata Sons, it said.

The SP group said the same scheme could be applied to the other Tata group listed companies which own Tata Sons shares. This would provide them with liquid assets in lieu of their shares and bolster their net worth by over Rs 1 trillion, the SP group said. The effective ownership of the Tata Trusts would be close to 100 per cent thereafter, from the present 66 per cent, once the Mistry family exits, the filing said. The Tatas’ listed companies own a 13 per cent stake in Tata Sons, while the rest is owned by minority shareholders.

The 70-year-old relationship between the Tata group and the SP group soured when in October 2016, the Tata Sons board removed Cyrus Mistry, the scion of the SP group, as chairman. The group had cited non-performance of Tata group companies for Mistry’s removal, but latter had said the group was financially sinking due to wrong decisions taken by his predecessor, Ratan Tata. Since then, both the groups have been engaged in a bitter legal battle, with the matter now pending in the Supreme Court. A hearing is expected next week.

The Tata group has said in the past it will respond to Mistry's settlement offer in the court. The SP group said a selective reduction of capital by extinguishing shares of Tata Sons held by the Mistrys and swapping them with shares of listed companies would be a simple solution to provide liquidity to Tata companies and a fair value compensation for the SP group. 

A similar direction in an oppression proceedings rendered by the Madras High Court was upheld by the Supreme Court in the M Ethiraj Vs Sheetala Credit Holdings matter in May 2018, the filing said.

A separation of interests would equitably give the SP group, as shareholders in Tata Sons, access to their proportionate share of value in Tata Sons and would not let two warring shareholders to have to live with each other only under the fiat of a court, the cash-strapped SP group said.

Contours of the proposed deal

• 13.22% direct stake in TCS for Mistrys
• Tata Sons would continue to have control over the underlying assets and over 51% stake in the IT firm
• Largely non-cash settlement would ease pressure on Tatas to raise debt
• Valuation of listed companies is based on last traded price
• Valuation of unlisted companies can be taken at book value or through a valuation process and adjusted for net debt
• Same scheme can also be used to provide liquidity to Tata group firms that own Tata Sons shares
• Source: SP group's terms filed with SC