By Gaurav Prakash.
The Tata group, which until now was one of the most predictable multinational conglomerates in India, has shaken investor confidence with this tug-of-war between Mistry and Tata Sons. “If the Tata group is to survive for another century, the current episode must be seen as a call to urgently fix the group’s structural vulnerabilities. This is in the long-term interest of the group and all its stakeholders.” Ousted Tata Sons chairman Cyrus Mistry sent his resignation to all listed Tata Group companies, the board of Indian Hotels Company decided to go ahead with its scheduled extraordinary general meeting (EGM), whose only agenda was to remove Mistry.
However, for a moment, it looked like India’s Tata Group could stop worrying about a split, and go back to making Jaguar cars, selling Tetley tea, running Taj hotels and writing software for global banks. But Mistry’s resignation from those boards is perhaps only a recognition that he was going to lose the proxy fight. Ratan Tata, who engineered the coup against Mistry at holding company Tata Sons Ltd, won’t be resting easy. The founding family’s tenuous control of the $103 billion conglomerate can’t be taken for granted. With Mistry promising to shift the battleground, a far messier skirmish lies ahead. The risk is no longer of a split in the empire; now, just by being patient and uncompromising, Mistry could, in theory get all of it. Similarly, Mistry’s insinuations of insider trading might baffle the securities regulator. It would be one thing to show that trustees of Tata Trusts, philanthropic institutions that control two-thirds of Tata Sons, asked and got unpublished, price-sensitive information about publicly listed units, but quite another to prove that any of them enriched themselves or others.
Finally, it won’t be that easy. If only Ratan Tata, who’s back as the interim chairman of the holding company, can quickly find a strong successor to look after the empire, he can regain his footing. That would allow him to broach a compromise from a position of strength. There’s already a proposal to list Tata Sons. Citigroup Inc drew up a detailed plan some time ago, implementing it would unlock value for Mistry’s shareholding too. Whether the deal works depends on Mistry’s risk preference: The longer he drags on the conflict, the more the loss of wealth for all shareholders, including Mistry himself. But Mistry, 48, has one advantage over his 78-year-old-adversary: time. The onus to settle the feud is on Ratan Tata, and the younger man must know that, too.