Now that India’s biggest trade war seems to have led to the record books as our most expensive corporate divorce, it is tempting to expect a truce between the Ratan Tata-led Tata Group and the Shapoorji Pallonji (SP) camps under Cyrus Mistry. The sighs of relief seem premature. There are signs that their contracts extend to the settlement agreement. On Tuesday, Mistry’s team announced SP’s readiness to split with Tata, which is expected to resale its 18.4% stake in Tata Sons to its family, which was expelled in 2016 by the shareholding company. The chairman, led to a bitter controversy over legal disputes, mudslinging and barbaric allegations. That share has been controversial throughout and will remain so for some time. On one level, the SP offer looks like a success for the Tata Group. The $ 110 billion conglomerate controls four-fifths of Tata Sons, which is keen to prevent the sale of those shares to a third party and has approached the Supreme Court to stop the cash-strapped SP group from being pawned for money. In particular, the buy-back deal began after the Supreme Court barred the SP from mortgaging Tata shares. How it turns out is still unclear. If Mistry’s own businesses aren’t that hard, it might be for a better deal (perhaps with another buyer). Even now, Mistry can make a tough bargain on how much his 18.4% stake in the group is worth.
The SP Group sought a “start-up, affordable and equivalent” approach at a price that reflects the value of Tata Sons’ “underlying clear and incomplete assets”. While it is easy to calculate the value of Tata’s listed companies, and its unlisted entities can be assessed on business parameters, it is difficult to determine what is the Tata brand value owned by Tata Sons. Reports indicate that SP has kept the total value of Tata Sons ₹9.7 trillion, the number in it ₹1.46 trillion per brand. Tata estimates that the 18.4% stake in SP recently filed in court is worth some ₹1.5 trillion, which translates to Under ₹8.2 trillion for the entire company. Although brand value experts are called in, the gap between the calculations on both sides can cause inequality.
The relative strength of their bargaining positions plays a role in negotiations. These negotiations may be weakened by the legal status of Article 75 under the Tata Sons Articles of Association, which limits the SP’s way of disposing of its stake without Tata’s consent. It acts as a clamp on those shares, but its authenticity has been challenged by the Mistry camp, arguing that its invitation would lead to the oppression of the minority shareholder. While some legal experts are blunt about this provision, others see it as a valid tool to retain major employer control. The High Court has not yet ruled on the matter. If time runs out for Mistry before it happens, he will have to take what is on the table. The Tata Group, however, is indebted and, even at a low price, is not rich enough to buy the SP stake, without scrambling for fundraising. The group is required to offload 72% of the holdings in Tata Consultancy Services. If so, the tough grip on Tata Sons will be loosely holding on to its cash cow.