In June 2016, four months before his removal as chairman of Tata Sons Ltd, Cyrus Mistry had presented a five-year business consolidation plan to the board of the $100-billion conglomerate’s holding company. The proposal was referred to Tata Trusts Chairman, Ratan Tata, who rejected it citing lack of details.
The details of this business consolidation plan are included in the suit filed by the two investment firms run by Mistry’s family before the National Company Law Tribunal. It accuses Tata Sons, Ratan Tata and some other individuals of mismanagement of the Tata Group and oppression of minority rights. Mistry’s family owns 18.37 percent in Tata Sons. BloombergQuint accessed the minutes of the meeting along with other documents attached to the petition.
5-Year Investment Plan
According to the minutes of the June board meeting, Mistry had sought to invest Rs 38,160 crore into various Tata Group companies over the next five years.
Nirmalya Kumar and Mukund Rajan, members of the now disbanded Group Executive Council, joined Mistry during his presentation to the board of Tata Sons.
The plan revised the proposed portfolio size lower to $200 billion by 2025 versus the earlier target of $350 billion by the same year. The revised figure was based on the prevailing growth rate at the time, of 10 percent per annum in dollar terms.
In 2014, Mistry had announced a separate Vision 2025 plan – an ambitious attempt to make the Tata Group one of the world’s 25 biggest companies by market value that supplies products to a quarter of the people on the planet.
Risk Of Concentration
The strategy presented in June this year looked to increase shareholder value in companies apart from Tata Consultancy Services Ltd, by increasing stakes in select companies and focusing on financial services and the consumer packaged goods industry, according to the meeting minutes.
They further recorded that Ishaat Hussain, now the interim chairman of TCS, supported the proposal to sell an up to 5 percent stake in the IT giant, over a 5-year period. The board then approved a resolution to sell an up to 3 percent stake, or 6 crore shares, in TCS in one or more tranches. The sale would have fetched Tata Sons Rs 14,500 crore at the prevailing market price.
While the TCS discussion continued board members Farida Khambata and Ronen Sen had highlighted increased headwinds for the company, while another board member, Nitin Nohria, continued to believe that the company had better future potential than other Tata Group companies. Mistry, then chairman of TCS, said he saw further growth in the company, despite the challenges.
Domestic Consolidation
The minutes of the same June meeting mention that the Tata Sons board also accepted the recommendation to consolidate the business in India, and focus on new prospects abroad.
The strategy on domestic consolidation proposed businesses to be clubbed under eight business verticals.
Global Companies
TCS and Tata Motors were identified as the prime vehicles for global expansion.
- TCS would continue evolving its business model.
- Tata Motors would look at investments and global acquisitions while Jaguar Land Rover would pursue its own plans.
Nitin Nohria, Tata Trusts’ nominee on the board of Tata Sons, even suggested ten worthwhile acquisitions that could be pursued, though which companies would spearhead them is not mentioned in the minutes.
Updated Investment Plan
A bulk of the Rs 38,160 crore spend proposed by Cyrus Mistry was earmarked for Tata Teleservices Ltd and its listed subsidiary Tata Teleservices (Maharashtra Ltd), according to the minutes of the June meeting. More than 85 percent of the Rs 14,800 crore, kept aside for TTSL, were to be utilised in financial year 2016-17.
The plan said Tata Sons would also spend around Rs 5,980 crore over next five years to buy out stakes held by different Tata companies, in other group companies, in an effort to eliminate cross-holdings. Rs 2,030 crore was set aside to hike the holding company’s stake in Tata Motors by the end of FY17, while Rs 2,250 crore would be spent in purchasing shares held by other Tata Group companies in TTSL, TTML and Tata Communications Ltd. in FY18.
Rs 425 crore was earmarked for Tata Sons to hike its stake in Tata Global Beverages Ltd. to more than 50 percent from the current level of 34 percent over a period of five years.
In the meeting, the strategy plan was also updated with a Rs 5,740 crore provision for the Docomo arbitration award.
Updated Business Plan
In the June meeting, Mistry also proposed an incremental investment of Rs 18,000 crore towards an increased obligatory payout to Docomo, after losing the international arbitration against the Japanese telecom company.
Tata Sons would have to borrow an additional Rs 9,000 crore in FY17, taking the total debt of the company to Rs 22,900 crore by the end of March 2017, the minutes reveal.
The income statement shared with the board highlighted that while profit would be equal to the proceeds from the proposed sale of TCS shares, there could be additional impairment costs due to the legal battle with Docomo. The finance department of Tata Sons had pegged the additional impairment at Rs 7,200 crore.
(Originally published on BloombergQuint)
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