There's a new twist in the Tata-Mistry dispute. Shapoorji Pallonji (SP) Group has offered to sell its 18.37 per cent stake in Tata Sons back to Tatas. The stake is estimated to be valued at Rs 1.3 lakh crore. SP Group said in a 'departing note' that the relationship spanning over 70 years, was forged on mutual trust, good faith, and friendship. "Today, it is with a heavy heart that the Mistry family believes that a separation of interests would best serve all stakeholder groups," it said.
The lawyer of Tata Sons had informed the Supreme Court on Tuesday that the 150 year-old conglomerate is willing to buy the 18.37 per cent stake owned by the Shapoorji Pallonji Group. It is for the second time, Tatas evinced interest in acquiring Mistrys' stake. Tata Sons, which is the holding company for around 100 companies, has an enterprise valuation of $100 billion, said banking experts. But SP Group sources claimed that the 18.37 per cent is valued Rs 1.75 lakh crore.
Mistrys have agreed to sell their stake and Tata Sons' laywer has informed the apex court of his client's intent to buy. But the question is whether Tatas can buy the share at such a high valuation? The legal eagles say that it's a trap.
Tata Sons' major revenue is the dividend and other incomes from Tata Consultancy Services (TCS). The privately held company saw its profit more than double in FY20, driven by higher dividend contribution from its software services subsidiary TCS. Profit soared 130 per cent to Rs 2,680 crore from Rs 1,145 crore in fiscal 2019.
Tatas lost huge money - to the tune of Rs 60,000 crore - in telecom business in the recent years. At present, when the whole world is in financial crisis, it will be hugely difficult for Tatas to raise Rs 1 lakh crore to pay Mistrys. Besides, major firms - Tata Steel, Tata Motors and Tata Power - are under heavy debts and needs capital infusion from the parent to move ahead. COVID-19 has shattered the businesses of Indian Hotels, Tata Chemicals and Tata Realty, among others.
Earlier, in 2018, the counsel for Tata Trusts had told National Company Law Tribunal (NCLT) that it would be in the best interests of Tata Sons to buy out the Shapoorji Pallonji Group's stake in the holding firm. Mistrys had in the past ruled out any possibility of selling the stake.
Tata's dispute with Mistry family began with the ouster of Cyrus Mistry from the top post of Tata group in 2016.
It was believed that SP Group got the Tata Sons shares when they bought into the financing firm FE Dinshaw and Co in the 1930s. But Tata counsel argued in the court that Mistrys didn't hold any shares until 1965 and they bought it later from the siblings of JRD Tata. Whatsoever, Mistrys are the largest individual shareholders in the holding company of Tata Group. The charitable trusts of the Tata family control 66 per cent stake.
Tata group lawyer said on Tuesday that the buyout will help end the years-long legal dispute between the two parties. The SP Group wanted to raise Rs 11,000 crore by pledging a part of the shares that they hold. According to the Article of Association of Tata Sons, the private firm has the first right of refusal in the stake of Mistrys, if they sell it. Tatas fear that pledging will allow the lender to takeover the shares in case of loan default. Tata considers it as potentially risky because the securities may end up falling in the hands of unfriendly investors. After hearing the matter, the Supreme Court has restrained SP Group from pledging Tata Sons shares till October 28.