Tata Sons To Raise Stake In Group Firms

Tata Sons has decided to hike its stake in major group companies. A Tata Sons board meeting held recently and attended by all Tata Sons directors approved the plan which will be set in motion shortly.

The decision aims to ensure that Tata Sons has a meaningful holding in the companies which it manages.

A Tata spokesperson declined to comment on the board meeting but said: Tatas should be seen to have a meaningful holding in the companies which they manage - and this process will continue in future within the permissible regulations.

The spokesperson declined to divulge further details, although sources said the primary objective was to raise Tata Sons stake in the group companies to 26 per cent. He also contended that this strategy was unconnected with the takeover code.

Sources, however, said the Tata Sons strategy follows from the threat it perceives once the takeover code is notified. The Tata holdings in most of the major group companies are way below the safety mark. In fact, only a year ago the group increased its stake in Tisco to 15 per cent from 7.5 per cent.

The groups stake in the other Tata majors too is considerably low. The Tata holding in Tata Electric, Tata Hydro, Tata Power and Tata Steel is around 15 per cent, while the promoters stake in ACC and Telco is about 11 and 12 per cent, respectively. The promoters hold 32 per cent in Tata Chemicals and 45 per cent in Indian Hotels. The question of Tata Sons consolidating its control over the group companies will also be looked into by McKinsey & Company, which was recently entrusted with the task of restructuring the group.

Analysts say that the success of the Tata move to consolidate its holdings will hinge on availability of funds which, according to Tata sources, is not a problem.

Another option before the Tatas is to sell non-core businesses, which contribute only about 20 per cent of the groups turnover, and use the proceeds in increasing the groups holding in the major companies which contribute the rest 80 per cent of the turnover, the experts said.

Another possible solution would be to club the companies under four or five businesses. Like all steel related businesses could come under one company, power related businesses under another, engineering, transport and automobiles under a third, hotels under a fourth, and infrastructure under a fifth company, the experts felt.

Any move to form an incorporated identity will, besides consolidating the groups holding, also bring about focus on the major businesses of the group. This would bring about efficiency and co-ordination of management.

However, as under the umbrella structure the various businesses will become separate profit centres, certain problems could arise later in case for example for entering into joint ventures, but these problems too are not unsurmountable, the experts added.