Tata Motors advances demerger scheme, unveils new corporate structure

Completion of the scheme is contingent on obtaining necessary shareholder, creditor, and regulatory approvals, anticipated to take 12-15 months

In a strategic move set to reshape its business structure, the Board of Directors of Tata Motors Ltd (TML) has given the green light to a comprehensive scheme of arrangement involving TML, TML Commercial Vehicles Limited (TMLCV), Tata Motors Passenger Vehicles (TMPV), and their respective shareholders. This decision propels the demerger plan announced in March 2024 to the next stage, according to the company’s filing with the stock exchanges.

As part of the scheme, Tata Motors Ltd will demerge its commercial vehicle undertaking, which includes all assets, liabilities, employees, and related investments, into TMLCV. Concurrently, the existing passenger vehicle business in TMPV will be merged into TML, the current listed entity.

Upon the scheme’s implementation, both TMLCV and TML will be renamed, resulting in two distinct listed entities. TML will encompass the commercial vehicle business and its related investments, while TMPV will house the passenger vehicle business, the Electric Vehicle (TPEM) business, Jaguar Land Rover (JLR), and their associated investments. Notably, Tata Motors Ltd’s total income from its commercial vehicles business stood at Rs 73,116.64 crore, representing approximately 99 per cent of the total income for the financial year 2023-24, according to the company’s standalone financial results.

Under the scheme, TML shareholders will receive one share of TMLCV, with a face value of Rs 2 fully paid up, for every fully paid-up share of Rs 2 held in TML of the same class. This ‘entitlement ratio’ aims to facilitate the smooth transition and equity distribution among shareholders.

These strategic actions are designed to enable the respective business groups to pursue their differentiated strategies with greater agility and accountability, thereby enhancing shareholder value. The arrangement is expected to have no adverse impact on employees, customers, creditors, and other business partners. The completion of the scheme is contingent upon obtaining all necessary shareholder, creditor, and regulatory approvals, a process anticipated to take approximately 12-15 months.

PwC Business Consulting Services LLP has provided the share entitlement report for this transaction, while SBI Capital Markets has offered a fairness opinion on the share entitlement ratio for the demerger. Legal advice is being provided by AZB & Partners, with Deloitte Touche Tohmatsu India LLP acting as tax advisors for the transaction.