Tata tumult in continental drift

There are several factors leading up to Cyrus Mistry's ouster as chairman of Tata Sons, the holding company of Tata Group — the biggest industry conglomerate in the country. An email from Mistry seems to suggest that the overseas dimensions of the tumult override the internal ones ever since Tata decided to invest in Air Asia and Vistara airlines and the huge loans taken by Tata Steel to acquire Corus (UK). The ouster also came at a time when Mistry and Tata Steel were making progress on a potential merger of its European steel operations and were close to a deal with the UK government about financial support and a restructuring of its pension scheme. 

At stake, now, is not only the deal but also the future of 11,000 workers at the Port Talbot (UK) steelworks owned by Tata Steel. The visit of UK Prime Minister Theresa May beginning November 6 comes at a time when UK is looking for reviving its investment climate post Brexit (Britain walking out of the European Union) in June this year. British media reports suggest that Mistry's exit could be good news for Tata Steel's 11,000 UK workers because Ratan Tata is a renowned Anglophile who bought the business in the first place. 

Just how much the Tatas could matter for the UK government priorities can be gauged from the fact the group also owns Jaguar Land Rover, which employs over 35,000 people in Britain, plus in other brands including Tetley Tea. Reports in the British media say one of the first people the secretary of state for business, energy and industrial strategy, Greg Clark, had met after assuming office was Mistry in Mumbai. Then, there is the China factor, too. Tata, while offloading its British steel operations, has cited a global oversupply of steel and cheap imports from China, high costs and weak domestic demand.

The Tata Group is the biggest corporate house of the country employing over 6.5 lakh people. As investors scurry to understand the Mistry fallout, the combined market capitalization of Tata Group — the notional value at bourses — fell to Rs 44,000 crore only three days after Mistry's sacking. Though share prices of many of the group companies recovered somewhat, investors are nervously watching for disclosures from the two warring groups — Mistry versus the veteran Ratan Tata as the interim replacement (a five-member search panel will find the successor in four months). Mistry's family firm, Shapoorji Pallonji Group, has 18.4% in Tata Sons —the 100- billion salt-to-software conglomerate. Mistry is believed to be considering fighting out the “illegal” removal.

In perspective

Tata Motors on June 2, 2008, acquired the Jaguar Land Rover business from the Ford Motor Company for a net consideration of $2.3 billion, as announced on March 26, 2008 in an all-cash transaction. Ford has contributed about $600 million to the Jaguar Land Rover pension plans.

Air Asia India began operations on June 2014 with Bangalore as its hub. Air Asia India is an Indian low cost carrier headquartered in Chennai. The airline is a joint venture with Air Asia Berhad (Malaysia) holding 49% stake in the airline, Tata Sons holding 40.06% and Arun Bhatia holding the remaining 10% through his company, Telestra Tradeplace. AirAsia is the first foreign airline to set up a subsidiary in India and the company marked Tata's return to the aviation industry after 60 years, having ceded Air India in 1946. As of February 2016, AirAsia India is the fourth largest low cost carrier in India. 

Tata Steel Europe Ltd is headquartered in London with its main operations in the UK and the Netherlands. The Corus Group was formed in 1999 and was taken over by Tata Steel on October 20, 2006 with $ 8.1 billion offer. In January 2009, Corus announced 1,000 job cuts in the Netherlands and 2,500 in the UK due the economic downturn. By late 2014 Tata Group remained £13 billion in debt, which had increased following the acquisition of Corus in 2007, due to reduced demand in Europe. At the end of March 2016 the Tata board rejected a turnaround plan for the Port Talbot site, and announced it would seek to sell all (or part) of its UK steel business.

Mistry, who took over from Ratan Tata four years ago, was seen as restructuring the group by paring down the stretched balance sheets of several companies. These moves were welcomed by investors and the total market capitalization of listed Tata group companies rose from around Rs 4.6 lakh crore to nearly Rs 8.5 lakh crore in the four years Mistry was at the helm of Tata Sons.

The sudden removal of Mistry raises a question mark over the restructuring exercise initiated by him in several Tata group companies, say analysts. Proxy advisory services and watchdog bodies representing investors' interests have also got into the act and would be scrutinizing the proceedings of the battle closely. Market watchdog SEBI has also announced that it would be keeping an eye on the situation.

Mistry no push-over

In the short-term however there is a growing fear of an internecine war within the Tata group that may pull in other industrialists and the Narendra Modi government because state-owned financial institutions are major share-holders in several group companies.

As of now Mistry has shown no signs of surrendering before Ratan Tata. Mistry hails from a powerful Parsi business family, and is girding up for a long-drawn battle with several Tata trusts which hold a majority stake. Mistry who took over as chairman of several Tata group companies after his appointment at the top job at the holding company has shown no signs of quitting these posts. Mistry is still chairman and non-executive director of Tata Motors Ltd, Tata Power Ltd., Tata Global Beverages Ltd, Indian Hotels Co., and some other companies. Since Tata Sons do not hold majority stakes in these companies, Ratan Tata will have to seek the assistance of other minority shareholders, including financial institutions to evict Mistry.

Mistry is going about chairing board meetings making it awkward for several old Tata hands, say reports. Analysts say the procedure for removing Mistry from the boards of listed companies is cumbersome. First Tata Sons will have to propose a resolution . This resolution will then have to be put up for voting by share-holders at an extraordinary general meeting called for the purpose.