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Did SP Group try to take over Tata Group?

It seems as if the curtains have been rung down on the 1st chapter of the Tata Group, Shapoorji Pallonji or SP Group saga that began centuries ago as fellow members of the Parsi community aiming to make a mark on the Indian business scene. For very long many even in business circles knew that the SP group was the single biggest shareholder of the Tata Group. A private joke some of us had when involved with the SP group and dealing with a Tata company as customer was – we are your biggest shareholder not your vendor.

When Ratan Tata flagged off a massive exercise to find and appoint a successor to himself and we kept reading of some or the other high profile name being in contention that when Cyrus Mistry was selected, it was a anti climax. If you are going to find someone within the family why make such a hullaballoo was a question that was asked.

The new Chairman was feted, greeted and introduced to the Prime Minister Manmohan Singh, Commerce Minister Anand Sharma, Chief Minister Narendra Modi and when you see the photos then published you cant see any acrimony between them – obviously.


After all Cyrus was family, his sister married to Noel Tata the brother of Ratan Tata, the two families enjoyed a 70+ year old relationship, belonged to the same close knit, quiet, understated Parsi community even as the Tata group itself has split hairs on this relationship.

Any long time observer of the Tata group and SP Groups will vouch for the fact that the relationship between them was always financial with the latter being the largest investor but never had one heard or seen anything more than that. The rest of the optics was the family connection and in a small close knit Parsi community this is not surprising.

So what went wrong ? Literally hours after the news was made public I did write this blog.

https://rvasisht.blogspot.com/2016/10/tata-group-exit-why-who-next.html

The following press report also mentions one of the things I said in the blog amongst many others. Those dismissing this as a after thought obviously have never analysed the Tata group and its DNA.

https://economictimes.indiatimes.com/news/company/corporate-trends/cyrus-mistrys-irish-citizenship-was-a-sore-point-for-the-tatas/articleshow/73180899.cms

But with further events since then I wanted to share what I feel is the reason behind this bitter fight. Read these news.

https://economictimes.indiatimes.com/news/company/corporate-trends/nusli-wadia-terms-his-removal-from-tata-motors-as-phrrhic-victory-for-tatas/articleshow/56145905.cms?from=mdr

https://www.livemint.com/Companies/yZa45Co8Zt1LTYNeMsA5JL/Wadia-and-Tata-What-went-wrong.html

 Those who have followed the Indian business industry saga like the Reliance – Bombay Dyeing, Wadia – Mistry – Goenka, Ratan Tata, – legacy CEO’s of Tata group and such will ask what is the connect here. Nusli Wadia, another Parsi who would have lost his inheritance but for the support provided by then JRD Tata and later his own support to Ratan Tata to protect his legacy suddenly becomes a enemy who is also summarily thrown out of the Tata Group boards. What's the connect?

My educated guess is that a far younger Cyrus saw in the situation an opportunity where the SP group instead of being just the largest shareholder could become the inheritor of the group. Connect the dots here. Ratan Tata does not have any children. Noel Tata is the reluctant half brother of Ratan Tata who may not be willing to get his hands dirty. Cyrus Mistry has 2 sons and so has Nusli Wadia.

The Tata group is a jewel not just in the Indian crown but also in the Parsi community crown. It is a known fact that the entire community has been nurtured and helped by those within who are better off. Losing the control of the group to any “outsider” would be anathema.  The community and family connect is too deep and strong to be given away to the public at large. But the challenge is that a 18% shareholder cannot so easily over power a 70% shareholder – you need financial muscle, political muscle and above all a strategic heft to make this happen.

So let me say that Cyrus Mistry and Nusli Wadia came up with the idea to jointly make a bid to take control over the group. With children, the legacy would continue albeit without a Tata. A hostile bid was out of the question. So why not a palace coup? Sell, chop, restructure in the name of shareholder value, profitability and then bits and pieces of the group if not the whole group could become their family jewel. Once you had bits and pieces, getting the rest on board would be easier because one need not actually financially acquire the assets. You just need to gain control over the management of the trusts and become the moral guardian.

Methinks that somewhere along the way somebody leaked, something reached the ears of Ratan Tata where he was absolutely convinced that dirty tricks were afoot, the whole trust was being broken and he had to contend with having to say in future – Et tu Brutus – not once but twice. And he acted swiftly, ruthlessly and methinks also that the entire government machinery and the system came to his aid. I don’t mean this as a underhand or illegal form of support, but I think the goodwill, love, emotional connect that the Tata group has with millions in India made the whole system hostile towards the Mistry-Wadia combine.

The Chief Justice of Supreme Court talks to the litigants like a younger brother would plead to his elders to be bigger men and they finally settle. 

https://economictimes.indiatimes.com/news/company/corporate-trends/nusli-wadia-withdraws-all-defamation-case-including-3000-cr-damage-suit-against-ratan-tata-others/articleshow/73226078.cms?from=mdr

Nusli Wadia had smoked the peace pipe in January 2020.  Known to be a corporate brawler as seen here he valiantly fought the Ambani family. For those who remember, that was probably the most exciting reality show family drama that no TV serial could match which literally ran on a day to day basis. As an aside for those who remember the famous Britannia case, the 38% shareholder of Britannia Rajan Pillai died 4 days after his arrest in India which led to many jail reforms.

https://www.businessinsider.in/thelife/personalities/news/britannia-owner-nusli-wadia-cases-against-ambani-and-ratan-tata/articleshow/73264154.cms

https://en.wikipedia.org/wiki/Rajan_Pillai

The moment Nuslia Wadia had settled his feud with Ratan Tata, the writing was on the wall for the SP group and Cyrus Mistry. It was a matter of time before they had to offer to settle. And they just did.

We can see season 2, 3, 4 of this drama as it leads towards "How do we settle" "What's the valuation" "How do you pay up".

Comments

Unknown said…
I am not too sure whether SP group could even dream about taking over!!. There are a couple of reasons for this. One if SP group had even the slightest inclination of taking over they had to drum up huge amount of funds which I am pretty sure would be just next to impossible. Two currently the SP group has a huge debt on two of their big companies which they are struggling to service. With this they had to take a desperate step of pledging their share of the Tata equity which has now been stalled by the Supreme Court. So I for one believe it was more an issue of Cyrus being unceremoniously removed which has led to a lot of reactions from either side.
Vasisht said…
Your comment is logical but please look at the situation not from what you know today but the situation between 2001 to 2016 when SP was NOT in financial distress. The distress and pledging is today. Secondly one need not take over the whole group by cash, Ratan Tata owns less than 1% shares but he controls the Tata Trust again not financially but morally. So SP group just needed to pack the Tata sons board with those who were loyal to them, pick up stake from 18% to 26% to ensure a place on the board by law and automatically Tata group control would pass on to them. Again this must be seen from a pre 2016 situation and not today. Finally when nobody in Tata's even after the most serious misdemeanor were sacked as brutally as Cyrus was the big question remains - why was Cyrus sacked so brutally.

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