The Shapoorji Pallonji (SP) group’s offer to swap its stake in Tata Sons Ltd for shares in publicly traded Tata group companies is unlikely to find support at Bombay House, the corporate headquarters of India’s largest conglomerate.
The offer in its current form may not be attractive to the group, a person close to the Tata group said, adding that the offer departs from the initial stated intent of the SP group to seek a complete separation from the Tata group.
Accepting the offer in the current form will risk giving the SP group more say in the listed Tata companies, which may not be in the interest of Tata Sons, he added.
While the offer to swap Tata Sons’ holdings for listed Tata stocks will not require the Tatas to raise huge sums of money, legal experts said that the offer might be a double-edged sword for the Tatas and a double bonanza for the SP group.
“Tata would have to allow the direct entity of the SP group in the listed entities as a significant minority shareholderand also cough up proportionate value for the brand value,” said Jeeva Rajagopal, partner, Fox and Mandal, a law firm.
“SP group, on the other hand, would get access to the potential for immediate liquidity and also directly mobilize other minority shareholders to join SP in vetoing critical decisions of the listed entities,” said Rajagopal.
Tata would, however, benefit from not having to liquidate assets to buy the SP stake in Tata Sons, he said, adding that the proposal will likely die a natural death by prolonged valuation discussions.
“That is, if at all Tata decides to play ball, even if only to appease the Supreme Court,” said Rajagopal.
The latest move by the Mistry group to seek cashless settlement marks a departure from an earlier stance where it was considering accepting staggered payments from Tata Sons over an extended period of time.
The arrangement will help reduce the possibility of any additional debt on Tata group, the Mistry family said in the application filed in the Supreme Court.
The offer will be part of the plea for relief the Mistry family is seeking from the court in a minority shareholder oppression case.
The next hearing of the case is scheduled for 3 November.
“This seems to be a clever move by the Mistry family, but this is just one of the proposals that will go in front of the mediators,” said Ramesh Vaidyanathan, managing partner, Advaya Legal.
However, he added that the presence of SP group firms on listed Tata companies is unlikely to impact these companies much.
“As a listed entity, these companies will have regulatory protection from Sebi (Securities and Exchange Board of India) and MCA (ministry of corporate affairs), so even a hostile shareholder in the Tata listed companies would not make their position worse,” said Vaidyanathan.
An email sent to Tata Sons did not elicit a response.
On 22 September, the Mistry family, which is fighting several court cases with Tata Group, said that a separation from the Tata Group is necessary due to the potential impact this continuing litigation could have on livelihoods and the economy.
The article was first published on livemint.com