While developments at Tata Sons and the recent board meeting of Indian Hotels Company indicate that ousted chairman Cyrus Mistry may fight it out before resigning as the chairman of various Tata firms, Ratan Tata’s letter to the Prime Minister informing him of Mistry’s replacement from the Tata Sons board and his meeting with the PM holds a lot of significance as the government holds sizeable stake in various Tata group companies through LIC or other insurance companies.
A source privy to the development said that Tata Sons is mobilising shareholder support before it can call an extraordinary general meeting (EGM) to remove Mistry across Tata firms. “Meeting of Ratan Tata and Cyrus Mistry with the PM separately was essentially to explain their side of the story and to get the government’s support as it is one of the big stakeholders in various group companies,” said the source.
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The government’s support as a shareholder (along with that of other large supporters) would be important for Tata group to pass any resolution aimed at Mistry’s removal. However, a source said that even Mistry is working towards garnering support from institutional and other shareholders of Tata Group in anticipation of a move by Tata Sons to call an EGM for his removal.
“Even Cyrus met the PM after his ouster and the meeting was to garner the government’s support which is a large shareholder,” said the source.
While Tata group can call an EGM despite Mistry getting support of the independent directors in some companies, experts say that Tata group will need shareholders approval to pass the resolution as their holding in several group firms is around 30 per cent. Only in some companies do the promoters have a majority holding such as Tata Consultancy Services where the promoters held a majority of 73.3 per cent as of September 2016 and Tata Communications where the promoters hold 74.99 per cent.
While the promoter holding in Tata Steel stands at 31.35 per cent, the government holding adds to 14.83 per cent. In case of Tata Power, the promoter holding is 33.02 per cent whereas the government holding via 3 public sector insurers is 18.25 per cent.
Experts feel that in case an EGM is called it will be very important to see if the government votes in favour of Mistry’s removal or against the resolution.
Even though foreign portfolio investors have a higher holding than the government’s in the companies, a market expert said that dealing with the government is more important because it is just one entity holding stake in all Tata Group companies in varied proportion. In case of FPIs, there are different investors holding stake in different companies. “By getting the government on its side, the promoters can hope to get favourable voting from one entity in case of all listed companies. However, in case of FPIs, the promoters will have to deal with different entities to muster their support,” said the market expert.