Shapoorji Pallonji Group agrees to exit Tata Sons, calls for separation

Ratan Tata (left) and Cyrus Mistry are engaged in a bitter feud. The 70-year-old relationship between the two groups might see an end soon
In an attempt to end the long-standing and bitter dispute with the Tata group, the SP group, owned by the billionaire Mistry family, on Tuesday told the Supreme Court (SC) that it would exit Tata Sons, provided an early, fair, and equitable solution was reached.

In a late evening statement, the Mistry family said a separation from the Tata group was necessary due to the potential impact the ongoing litigation could have on livelihoods and the economy.

The Mistry family owns 18.37 per cent in Tata Sons and is its largest minority shareholder.

The statement came within hours of the Tata group informing the SC that it was ready to buy out the SP group’s stake. The Tata group did not mention any valuation or timeline for this.

With the latest development, the 70-year-old relationship between the two of India’s biggest groups might come to an end if the Tatas agree to buy out the stake. The valuation cited by the Mistrys could be a hurdle, though. 

“There will now be negotiations between the two. It’s a step in the right direction,” said S P Ranina, a senior corporate lawyer, who had first advised both sides to settle the issue.

The SP group is expecting a valuation of Rs 1.78 trillion for its stake, valuing the entire Tata Sons at Rs 9.7 trillion, or Rs 2.4 crore per share.

“It is crucial that an early resolution is reached to arrive at a fair and equitable solution reflecting the value of the underlying tangible and intangible assets,” the statement by the SP group said.

“The SP-Tata 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.

After the hearing on Tuesday, the SC barred the Mistry group from pledging or selling its stake in Tata Sons and asked it to maintain the status quo until its next hearing on October 28, when it will start hearing the final arguments in the case.

The SP group in its statement said the role hitherto played by it was always one of guardianship “with an aim to protect the best interests of the Tata group”. 

“It is a matter of record that prior to the year 2000, when the Tata Trusts, being public charitable trusts, couldn’t exercise their voting rights, the same being held by a public trustee, the SP group voted to protect the best interests of the Tata group,” the statement said.

In 2012, it said, when Cyrus Mistry, the scion of the SP group, accepted the position of chairman of Tata Sons, it was not only with a sense of pride, but also with a sense of duty as an “insider” on the board of Tata Sons. 

“The Tata group was going through significant change. A generation of Tata leaders was retiring with implications on the future governance of the group. Several of these leaders who were retiring from the Board of Tata Sons also served as Trustees of the majority shareholders -- Tata Trusts,” the Mistry group said.

“It is in this context that Mistry set about trying to establish a governance structure that would institutionalise accountability and create the right checks and balances, without contravening the new Sebi Insider Trading law that regulated the flow of information across all stakeholders,” the statement said.

Unfortunately, the statement said, Cyrus was removed in October 2016, when he attempted to implement these governance reforms. “It is extremely unfortunate that the current leadership of Tata Sons has not only continued to take value-destructive business decisions in a misguided effort to prove a point in these proceedings. It is a matter of public record that several issues identified years earlier continue to plague the group -- be it the operations of Tata Steel UK, where over the last three years alone the operational losses have increased by an additional 11,000 crores, or the group’s aviation businesses,” it said.

These actions, or lack thereof, have meant that the total debt in major Tata group companies has increased by approximately Rs 1 trillion in the last three years. “Unfortunately, the impact of these actions continue to hurt minority shareholders, be it the SP group at Tata Sons or the millions of shareholders of the listed companies in the Tata group,” the statement said.

The Mistry family was in the midst of raising funds against the security of their personal assets to meet the crisis arising from the global pandemic. The action by Tata Sons to block this crucial fundraising, without any heed for the collateral consequences, is the latest demonstration of their vindictive mindset, the SP group said.

The fundraising was important for the Mistry group as its construction business is under pressure due to the pandemic. Besides, the SP group has defaulted on loans taken from its listed entity S&W Solar.

“The current situation has forced the Mistry family to sit back and reflect on the past, present and possible future for all stakeholders. The past oppressive actions, and the latest vindictive move by Tata Sons that impact the livelihoods of the wider SP Group community leads to the inexplicable conclusion that the mutual co-existence of both groups at Tata Sons would be infeasible," it said.

Cyrus Mistry and Tata group patriarch Ratan Tata fell out with each other after the Tata Sons board removed Mistry as chairman in October 2016 -- just a few months before Mistry’s term was to expire. Since then, both sides are litigating over the rights of minority shareholders in appointing a director on the board of Tata Sons and whether the Tata Trusts can veto the decisions of the Tata Sons board.

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