Tata group is one very respected name, and whatever happens in The Tata Sons is a subject of discussion for many intellectuals. But as the events turn into a corporate fight, I am sure layman is confused. I was also tracking it and trying to understand it with the help of my education in management, so I am trying to make it simple.
Parsis or Parsees are an ethnoreligious group that migrated to the Indian subcontinent from Persia during the Muslim conquest of Persia of CE 636–651. According to the Qissa-i Sanjan, Parsis migrated from the Sasanian Empire to Gujarat, where they were given refuge between the 8th and 10th century CE to avoid persecution following the Muslim conquest of Persia. Per one calculation, in India, there were only 69,000 in 1.24 billion population during 2014.
There are some well-known and respected families among Parsis. Tata and Mistry are one of them. Jamsetji Nusserwanji Tata (3 March 1839 – 19 May 1904) was an Indian pioneer industrialist. He founded what would later become the Tata Group of companies. Tata is regarded as the legendary “Father of Indian Industry.” Jawaharlal Nehru referred to Tata as a One-Man Planning Commission. Tata, who in his early life was a merchant, went on to change the business world of India through his many ventures within the cotton and pig iron industry and is known as one of the most influential builders of the modern Indian economy. So be it Tata Iron and Steel, Tata Engineering and Locomotive, Tata Chemicals, and many others.
Mistry’s family was out of the limelight. However, it became the spotlight when Cyrus Mistry became Head of tata Sons. Pallonji Shapoorji Mistry (born 1929) is the father of Cyrus Mistry, an Indian-born Irish billionaire construction tycoon and chairman of Shapoorji Pallonji Group, the wealthiest Irish person. According to Forbes, his wealth is estimated to be US$14.4 billion as of October 2019.
You may be thinking, Ya ya Ashutosh; we can read that on Wikipedia. But tell us where it all started. Wait. This fight is important because, before this, Ratan tata fought against Ajit Kerkar, Rusi Modi, and Darbari Seth. If you want to read about it, Read Tata vs. Mistry: New Twist in a story. ( Part1) And Tata vs. Mistry: New twist in the story ( Part 2)
Tata sons. The name itself shows that it is a family company. So how come Mistry came into the company and that also 18%+? Some may say it is F E Dinshaw and company. Owned by Frameroz Dinshaw; a Friend, Guide, and finance to the last resort for some of the tata companies. In 1924 he lent two crores as bailout to Tata hydro and tata steel. Tata Agrees to pay a 25% profit to tata steel and 12.5% to Tata Hydro. In 1936, after the death of Dinshaw, Shapoorji Pallonji Bought his stake in tata sons from his successors. ( Another story claimed by Tata sons in court that, till 1965, there was no stake held by Mistry Family. But I did not agree to that version)
For a sufficiently long time, They were sitting there being financial investors. Cyrus was the first one from Mistry Clan who became a director on Tata sons in 2006.
Wait. I did not tell you any story of stakes in Tata’s sons. So let’s listen from tata sons perspective. How does this outsider enter into the family business and become the Head?
After Jamsetji’s death, his two sons Dorab, Sir Ratan (not to be confused with Ratan Naval Tata), and cousin RD Tata merged companies to form the modern-day Tata Son. in 1918, Sir Ratan bequeath close to 40% stake in Tata Sons to Sir Ratan Tata Trust (SRTT) and a small portion to widow Navajbhai ( Who Adopts Naval Tata, Father of Ratan Tata). In 1924, F E Dinshaw lent two crores to Tatas and ended up 12,5%. In 1926 RD Tata died, leaving his entire estate and debts to his eldest son JRD. He was just an intern in the Tata group at that time. In 1936, Dinshaw died. Shapoorji Pallonji buys his 12.5% stake from Dinshaw’s heirs. In 1932 Sir Dorab died, leaving close to 40% of Tata Sons to Sir Dorabji Tata Trust (SDTT). At that time, Sir Dorabji Tata Trusts and Sir Ratan Tata Trust held 80%. Here JRD Tata distributed their shareholding with Siblings Sylla, Darab, Jimmy, and Rodabeh. Between 1936 and 38, Sylla and Darab sold more shares to Shapoorji, taking his stake to 17.5%. In 1975, Pallonji Shapoorji, son of Shapoorji Pallonji and Father of Cyrus Mistry, inherited the Tata stake.
Preparation was done. Everything was set. It was time to make Corporate battles.
Before going to that, Let’s receive some management knowledge. There are many successful Corporate leaders with their strategies and ways of managing their own companies. Management is Science, but more than that, it is an art. That is a reason why the style of JRD Tata was successful and also the way Ratan tata was. Well, Succes is not objective here. It is more subjective. That was one reason why group companies were successful during the time of JRD Tata but did not look like a group. They were like Fiefdom. Mukesh Ambani is also thriving and so do jeff Bezos and Kishore Biyani.
When JRD Left, the Tata group was fragmented, and independent companies tried to look like one group. Yes, Ratan tata makes it like one group and makes it globally successful. Be it Acquisition of Corus, Buying the brand of JLR from Ford, buying Tetley tea, Acquisition of 8 Oclock coffee, or investing in Global telecom. But there was a cost. Tata Sons and many of their group companies paid massive interest on the Debt. Many of their business are not concentrated in one entity, like Defence Busines. Nelco is a Defence business, but Tata motors also have par, and so Does Tata Power. Tata chemical is not only a chemical but also a Retail Business. Telecom and wireless business can be tracked in many different entities, some of which are small n size and do not show much profit. So Tata nano was looking more like a charity.
Cyrus Mistry enters into this mess as Head.
Before going ahead, Let’s understand the difference between the Indian structure and some other global structures of the Board of directors.
A board of directors (B of D) is an elected group of individuals that represent shareholders. The board is a governing body that typically meets at regular intervals to set policies for corporate management and oversight. Every public company must have a board of directors. In general, the board makes decisions as a fiduciary (on behalf of shareholders). Issues that fall under a board’s purview include the hiring and firing of senior executives, dividend policies, options policies, and executive compensation. In addition to those duties, a board of directors is responsible for helping a corporation set broad goals, supporting executive duties, and ensuring the company has adequate, well-managed resources at its disposal.
Board structure can differ slightly in international settings. In some countries in Europe and Asia, corporate governance is split into two tiers: an executive board and a supervisory board. The executive board is composed of insiders elected by employees and shareholders and is headed by the CEO or managing officer. The executive board is in charge of daily business operations. The supervisory board is chaired by someone other than the presiding executive officer and addresses similar concerns as a board of directors in the United States.
In India, we have something called a holding company structure. I can give you many examples. Grasim, ITC, SBI, HDFC, Vedanta, Tata Investment, and many more. With this structure, the Board of the subsidiary company can be executive, and the Board of the holding company can be supervisory.
Tata sons are one Holding company for nearly all Tata companies. So it is very typical for Them to decide the direction where they are hearing. How much risk to take, when, and how much capital to raise and infuse. So by Setting Cyrus Mistry, son of one of the largest shareholders, Ratan Tata took the Right step. So what went wrong?
The answer to this question remains because of the Difference between Cyrus Mistry and Ratan Tata. Both of them are, beyond doubt, visionaries. But their vision is related to different when it comes to a goal.
Ratan tata was interested in making the Tata group Global. Yes, He made it. He bought Corus when the Size of Tata steel was around 1/4 of Corus steel. That is their European business.
They bought a Jaguar Land Rover. As a result, Tata Motors has Become a Global player, competing with BMW, Mercedes, and Audi.
They bought Properties in big cities for Indian hotels—a great thing.
Tetley Tea, 8’o clock coffee, makes the business of Tata global beverages more and more international.
But it came with a cost.
When you want to grow not in percentage but MULTIPLES of our size in months, You need heavy financing. There are some ways to do that But with a cost. One of them is Leverage buyout.
A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company.
Tata group raise a Bridge loan of around 12000 cr ( $3 billion) from JP Morgan and SBI for the JLR acquisition. That supported Tata motors for some time, But For Tata Corus deal statement of TV Narendran, Tata Steel managing director and chief executive officer is sufficient.
“If you have to choose between a growing and mature market, you would pick a growing market. You would pick a market where you have been operating for 100 years and have the strongest equity.”
In 2006 Tata paid $12 Billion, out of which $6 billion was Debt. Before the Acquisition, Tata Steel was a leader in steel manufacturing in India. Today JSW steel, a Sajjan Jindal-led company, is a leader. Tata group tried to make a deal with ThyssenKrupp but failed. As COVID 19 making disrupting Capital investment and growth, Now this doesn’t look easy. Though Corus tata steel maybe took place with Desperation with Lakshmi Nivas Mittal bought Arcelor. But the Tata group did it.
When Cyrus Mistry came Debt to equity ratio of the Tata group was high. The Telecom unit of the tata group was ready to die, and Their Joint venture partner was asking for huge payments. Docomo, a joint venture partner, was fighting with Tata Sons over the right to sell back its stake in the Indian wireless venture, to the Tata Group holding company, for at least 50 percent of the original investment, as per the terms of a 2009 agreement. Eventually, Tata sons paid DoCoMo. But That is also when Ratan tata interferes.
It was not an easy case.
Another case was Tata Power. While I am writing, Tata power sold its defense business to another entity that is in the full-time defense business. But it was not the same case all the time. As they say, The structure of the Tata group was not easy. There was no one holding company in the Tata group. Though Tata sons are one, Tata Chemicals, Tata Steel, Tata Power, and Tata motors also hold stakes in many companies. Tata chemicals have more investments in group companies than their market capitalization. Cyrus Mistry started making it straight. For which he even sold some units. He questions the investments in some acquisitions. Without telling the Higher Board, he bought some assets for tata power. That infuriates Tata sons; how did he decide without asking us?
It all ended in throwing out, Ousted, Cyrus Mistry.
Right now, the legal fight is going on about the Value of the tata sons. I believe that Both are right and both are wrong. I agree that the value of the stake is worth 80000 cr. But I am also decided that that Value is of paper value. So there was some difference when someone tried to sell such a high value.
