Tata-Mistry drama bruises confidence of once-loyal investors

At India’s most celebrated conglomerate, a public battle of words and wills is rubbing formerly loyal outside investors the wrong way. It is an ominous sign for a company that used to have so much investor goodwill. Shareholders voted Cyrus Mistry, the embattled ex-Chairman of parent company Tata Sons, off the board of Tata Consultancy Services, the Tata empire’s most treasured asset. The vote was a foregone conclusion and a victory for family patriarch Ratan Tata, who controls almost three-quarters of the company. But a substantial dissent vote from minority shareholders is a signal the shine on Tata’s reputation as a careful steward is wearing off.

In the board vote over Mr. Mistry’s fate, where almost 90% of investors participated, 45% of non Tata-family controlled votes opposed the motion. Among retail investors, almost 80% voted to keep Mr. Mistry. Clearly they don’t like drama, which pits Mr. Mistry, who says he is fighting to “save the soul of the Tata Group,” against Mr. Tata, whose family has controlled the companies for generations.

Mr. Mistry portrays himself as a crusader for corporate governance. Tata dismisses his accusations. And he has plenty at stake, since his family is the second biggest shareholder in the holding company after the Tatas. In many ways, TCS exemplified the benign lordship the Tata clan held over its companies. TCS has been long lauded as an insulated and independently run company. Shareholders have granted it a premium for clean corporate governance and delivering returns. TCS trades at 15.7 times one-year forward earnings, meanwhile its peers average 13.9 times forward earnings. With outside shareholders voicing displeasure, that premium looks to be in danger.

The broader Tata discord is set to continue as voting to oust Mr. Mistry spreads to other group companies. Mr. Mistry could be voted out from the chairmanship of Jaguar Land Rover-owner Tata Motors in coming weeks. Tata companies hold lower stakes there, around 30%. So Tata Sons may need to buy up Tata Motors’ stock in coming days to cement its position. Investors shouldn’t be fooled by the bid. They may just be buying shares from independent shareholders who have had enough.
 

Source: The Wall Street Journal