Shapoorji Pallonji Group has formally sought separation from Tata in the Supreme Court and argued that Tata Sons is effectively a two-group company.
The Tata Group comprises Tata Trusts, Tata family members and Tata companies holding [ 81.6%] of the equity share capital, and the Mistry family owning the balance 18.37%.
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.
The value of 18.37% stake of the SP Group in Tata Sons is more than Rs 1.75 lakh crore.
The contours of the scheme of separation are that 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).
SP Group said a neutral third-party valuation can be done for the unlisted assets adjusted for net debt (i.e. debt less cash). As a non-cash settlement, SP Group to be given pro-rata shares in listed entity(ies) of the Tata Group where Tata Sons currently owns stake.
For example, 72% of Tata Consultancy Services Ltd. (TCS) is owned by Tata Sons. SP Group’s ownership of 18.37% translates to 13.22% shareholding of TCS (valued at Rs 1.35 lakh crore at present market capitalisation of TCS).
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.
Benefits of proposed scheme of separation through a reduction of capital are that a pro-rata separation of assets and liabilities would be a fair and equitable solution to all stakeholders.
A largely non-cash settlement would ease pressure on Tata to raise large quantum of debt and minimises any dispute on valuation.
The value of listed companies is based on last traded price which is published daily. The value of Brand as per the latest valuation report done by Tata and 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).
Tata Sons would continue to have control over the underlying assets (and more than 51% stake in TCS). It would be beneficial to Tata Companies as a similar scheme can also be used to provide liquidity to the Tata Group companies, who 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 would be quicker to implement with minimal disruption to operating companies.
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