Mistry Family Proposes Share Swap To Separate From Tata Sons
Ratan Tata (left), and Cyrus Mistry. (Source: BloombergQuint)

Mistry Family Proposes Share Swap To Separate From Tata Sons

The Mistry-family owned SP Group has proposed a plan of separation from Tata Sons Pvt. Ltd. involving shares of listed Tata Group companies, to end the decades-old partnership between the two.

This plan follows the SP Group’s announcement in September that a given the four-year long legal battle between the Mistry family and Tata Group the “mutual co-existence of both groups at Tata Sons would be infeasible”.

Hence, the SP Group has proposed a share swap in an application filed with the Supreme Court, where the case is currently pending.

The SP Group has proposed:

  • A selective reduction of capital at Tata Sons thereby extinguishing shares held by them.
  • In exchange, SP Group be granted shares in listed companies of the group.
  • Also, cash consideration or shares for brand value, unlisted assets etc.

Tata Sons is the holding company of the Tata Group and has two main shareholders, Tata Trusts that own 66% and the Mistry family that owns 18.37%.

The net asset value of 18.37% stake of the SP Group in Tata Sons is estimated more than Rs 1,75,000 crore. Disputes over valuation can be eliminated by doing a pro-rata split of listed assets (share price value is known) and pro-rata share of the Brand (Brand valuation is already done by Tata Group and published). A neutral third-party valuation can be done for the unlisted assets adjusted for net debt (ie: debt less cash).
SP Group Application

An illustration of the proposed separation plan...

  • 72% of Tata Consultancy Services Ltd. is owned by Tata Sons.
  • SP Group’s ownership of 18.37% translates to 13.22% shareholding of TCS.
  • Hence, 13.22% of TCS be transferred to SP Group

Were the SP Group’s separation plan to be implemented, its stakes in listed Tata Group companies where Tata Sons holds a stake, would approximately range from 4% to 13.5%, as per a simple, pro-rate computation by BloombergQuint.

According to the SP Group, the proposed separation plan would allow Tata Sons to maintain promotership of group companies, as the Mistry family’s stake in the listed companies would amount to less than 10%, except for in TCS.

It has also offered that incase the Tata Group does not want to part with stock in a particular listed entity, the SP Group would accept TCS shares or cash.

The SP Group added that a share swap will be easier to implement.

  • Pro-rata separation of assets and liabilities would be a fair and equitable solution to all stakeholders.
  • Largely non-cash settlement would ease pressure on Tata Group to raise large quantum of debt.
  • The plan minimises any dispute on valuation.
A separation of interest would equitably give the SP Group, as shareholders in Tata Sons, access to their proportionate share of value in Tata Sons and would not let two warring shareholders to have to live with each other only under fiat of a court.
SP Group Application 

This separation plan has been proposed under Section 242 of the Companies Act, 2013 that gives wide ranging powers to a court to order a solution if it has found that a company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any shareholder.

After a sudden ouster as Tata Sons chairman in October 2016, Cyrus Mistry and entities owned by his family filed a suit of oppression and mismanagement against Tata Sons and its shareholders. While the National Company Law Tribunal decided against him, the Mistry family won in appeal at the NCLAT. Tata Sons has appealed the case in the Supreme Court where it is currently pending.

Tata Sons has yet to offer comment on the separation plan proposed by the Mistrys.

Also read: Tata - Mistry: The Beginning Of The End?

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