The Shapoorji Pallonji (SP) group has sought a pro rata stake division of all assets of Tata Sons, including a direct 13.22 per cent shareholding of TCS valued at Rs 135,000 crore at the current market capitalisation of TCS. Further, the value of 18.37 per cent stake of the SP group in Tata Sons is more than Rs 175,000 crore, SP group has said in its filing in the Supreme Court.
While formally seeking separation from Tata in the SC, SP group said Tata Sons is effectively a two-group company, with the Tata group comprising Tata Trusts, Tata family members and Tata companies holding which hold 81.6 per cent stake in the share capital on the one side and the Mistry family owning the balance 18.37 per cent on the other side.
Tata Sons is a core investment company and is the holding company for the Tata group and its value arises from its stake in listed equities, non listed equities, the brand, cash balances and immovable assets, SP said.
The SP group disputes over valuation can be eliminated by doing a pro-rata split of listed assets (share price value is known) and pro-rata share of the brand (brand valuation already done by Tata and published). A neutral third-party valuation can be done for the unlisted assets adjusted for net debt (i.e. debt less cash), it said.
According to the Mistry group, as a non-cash settlement, SP group should be given pro-rata shares in listed entities of the Tata group where Tata Sons currently owns a stake. “For example, 72 per cent of Tata Consultancy Services (TCS) is owned by Tata Sons. SP group’s ownership of 18.37 per cent translates to 13.22 per cent shareholding of TCS (valued at Rs 135,000 crore at present market capitalisation of TCS).
The SC filing said pro-rata share of brand value adjusted for net debt (i.e. 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. This can be settled in cash and /or in listed securities.
On the benefits of proposed scheme of separation through a reduction of capital, SP group said pro-rata separation of assets and liabilities would be a fair and equitable solution to all stakeholders. It’s largely non-cash settlement which would would ease pressure on Tata to raise large quantum of debt and minimizes any dispute on valuation.
The group said value of listed companies is based on last traded price which is published daily. The value of brand is as per the latest valuation report done by Tata. The value of unlisted companies can be taken at book value or through a valuation process and adjusted for net debt (i.e. debt less cash on hand), it said.
“Tata Sons would continue to have control over the underlying assets (and more than 51 per cent stake in TCS),” it said. Similar scheme can also be used to provide liquidity to the Tata group companies, which have cross-holdings in Tata Sons. The value to companies by unlocking cross holdings would be in excess of Rs 1 lakh crore, and would benefit millions of shareholders, it said. It’s quicker to implement with minimal disruption to operating companies, it said.
After close to 84 years’ of association, the Shapoorji Pallonji Mistry (SP) group has offered to exit from Tata Sons as the protracted litigation with the Tatas has affected the business expansion plans of the SP group which has a debt burden of Rs 33,400 crore. The legal battle between the Tatas and the SP group started after Cyrus Mistry was sacked as Chairman of Tata Sons.
On September 23, The SP group stated before the Supreme Court 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 Tata group is open to buying the shares in Tata Sons held by the SP group to aid the latter’s fund raising efforts.
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