Tata Sons to get Rs 2300 cr for software arm transfer

Tata Sons, the holding company of the Rs 52,000 crore Tata group, will get Rs 2,300 crore as consideration for transferring its software division to Tata Consultancy Services (TCS).

This consideration is non-interest bearing and shall become payable upon the successful completion of TCS' public offering. TCS is expected to raise between Rs 5,500-6,000 crore through its initial offer.

TCS, in its red herring prospectus, said the net proceeds of the float would be used to pay the purchase consideration due to Tata Sons for the transfer and thereafter any remaining proceeds would be used for general corporate purposes.

Moreover, Tata Sons has divested its entire holding of 51.12 per cent in CMC to TCS for Rs 379 crore. The company will not receive any proceeds from the offer for sale or from the sale of any equity share pursuant to the exercise of the green shoe option.

The TCS offer of 5.54 crore equity shares comprises a fresh issue of 2.27 crore equity shares of Re 1 and offer for sale of 3.26 crore equity shares of Re 1 each for cash issued at a price determined through the book-building route. The software business has been operating as a division of Tata Sons since 1968.

In October 2002 the board of directors of Tata Sons approved the scheme of demerger of the software business and thereafter in December 2002 filed the scheme with the Bombay High Court. The scheme was sanctioned in May 2003.

According to the scheme, the TCS division of Tata Sons shall be transferred to TCS with effect from April 1, 2004. This would be effective upon the execution of the underwriting agreement for the public offer.

From the appointed date of April 1, 2004 up to the date on which the scheme is effective, Tata Sons will continue to hold the TCS division.

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The game plan

• Net proceeds would be used to pay the purchase consideration due to Tata Sons for transfer
• Balance proceeds would be used for general corporate purposes
• Tata Sons has divested its entire holding of 51.12 per cent in CMC to TCS for Rs 379 crore.
• Company will not receive any proceeds from the offer for sale or from the sale of any equity share pursuant to the exercise of the green shoe option