The Shapoorji Pallonji (SP) Group has proposed a non-cash settlement for its 18.4% stake in Tata Sons. It has offered a pro-rata division of all the assets of the holding firm as part of the settlement and has valued its stake in Tata Sons at Rs 1.75 lakh crore.
In its filing before the Supreme Court where the matter is pending and hearing is likely to resume from November 3, the SP Group has sought a direct stake in all the listed companies of the Tata Group, which includes a 13.22% stake in Tata Consultancy Service based on the the formula suggested by it. It has said as per this scheme its stake in other listed firms of the group would be below 10%. It has also sought a pro-rata share of the Tata brand and asked for a neutral third-party valuation for the unlisted assets adjusted for net debt.
The SP Group’s proposal said as a non-cash settlement, it should get pro-rata shares in listed entities of the Tata Group where Tata Sons currently owns stake. “For example, 72% of TCS is owned by Tata Sons and SP Group’s ownership of 18.37% translates to 13.22% shareholding of TCS (valued at Rs 1,35,000 crore at present market capitalisation of TCS),” it said in its affidavit.
The pro-rata share of brand value adjusted for net debt (ie debt less cash and cash equivalents) can be settled in cash and/or in listed securities. For the unlisted companies, an expedited valuation can be done with a valuer selected by both sides, the SP Group has proposed. The Tata brand was valued at $20 billion as per its last valuation.
Stating that pro-rata separation of assets and liabilities would be a fair and equitable solution to all stakeholders, the SP Group has said the share swap solution would minimise any dispute over valuation, be quicker to implement and ease pressure on Tatas to raise large quantum of debt, and Tata Sons would continue to have control over the underlying assets (and more than 51% stake in TCS).
It has said such a separation is quite different from a buyout under the “oppressive and illegal provisions of Article 75 of the Articles of Association”, and “similar scheme can also be used to provide liquidity to the Tata Group companies, who have cross-holdings in Tata Sons. In case Tata Sons does not want to dilute its stake in certain companies, the SP Group could accept the value in either cash or TCS stock,” it has said. Besides, this settlement will not increase the debt for Tata Sons to buy out its group shares, the company has said.
According to SP Group, the same scheme can also be applied to Tata Group companies that have shareholding in Tata Sons to provide them with liquid assets in lieu of their shares, and bolster their net worth by over Rs 1,00,000 crore. The effective ownership of the Tata Trusts would be close to 100% thereafter from the current 66% once the Mistry family exits, it has said.
As is known, on September 23, Tata Sons in the course of a hearing in the SC had offered to buy out the SP Group’s 18.4% stake in the holdco, following which the latter said it was time to separate from the Tata Group, thus ending a 70-year relationship. “Today, Shapoorji Pallonji Group stated before the Supreme Court that separation from Tata Group is necessary due to potential impact of this continuing litigation could have on livelihoods and the economy,” the company had then said.
The SP Group wanted to pledge its shares in Tata Sons to raise funds but this was objected by the Tatas who apprehended the shares could end up in the wrong hands.
Since October 24, 2016, when Cyrus Mistry was unceremoniously sacked as chairman Tata Sons, the SP Group and the Tatas have fought bitterly. While the SP Group claimed they had been oppressed as minority shareholders, the Tatas have alleged that Mistry had mismanaged the affairs of the group. Mistry countered this charge stating that Tata Group had suffered because of several acquisitions.
