Tata Sons Ltd, the holding firm of the Tata group, on Tuesday said it would raise its shareholding in Tata Global Beverages Ltd and Tata Chemicals Ltd by up to 6.84% and 4.39%, respectively.
The move is part of a larger strategy adopted by Tata Sons’ chairman N. Chandrasekaran to disentangle cross-holdings of group companies and simplify structures.
The value of the acquisitions is estimated at Rs1,458 crore. Tata Sons will buy as many as 43.1 million shares, or a 6.84% stake, in Tata Global from Tata Chemicals as part of the restructuring. Tata Chemicals said Tata Sons will acquire up to 11.1 million shares, or a 4.39% stake, in the company from Tata Global.
Tata Global and Tata Chemicals said the proposed date of acquisition is on or after 18 September and the shares are proposed to be acquired at the prevailing price on the date of acquisition.
Before the proposed acquisition, Tata Sons’ holdings in Tata Global and Tata Chemicals stood at 22.63% and 19.35%, respectively. On Tuesday, shares of Tata Global rose 1.39% to Rs211.95 on BSE. Tata Chemicals shares gained 2.19% to Rs631.65.
Chandrasekaran, who took the top job on 21 February, has been restructuring the investment portfolio with alacrity.
The notification on Tuesday follows one by Tata Steel Ltd and Tata Motors Ltd on 17 June which said Tata Sons would buy 83.6 million shares, or a 2.85% stake, in Tata Motors from Tata Steel on or after 23 June.
The complex cross-holdings within listed Tata companies has been a sore point with investors. “It’s a very good move as it helps the companies unlock lot of value and, most importantly, allows investors to choose where they want to invest,” said Rajiv Agarwal, associate professor strategy and family business at S. P. Jain Institute of Management and Research.
In his November 2016 blog titled Family Feuds: The Promise and Peril of Family Group Companies, Ashwath Damodaran, professor of corporate finance and valuation at the Stern School of Business, New York University, said cross-subsidization not only transfers wealth from the best companies to the worst but can collectively leave the group worse off. Also, these investments and how they are recorded in accounting statements make them more complex and difficult for investors to understand. “Valuing a company with 20 cross-holdings effectively requires you to value 21 companies,” he wrote.
Source: Mint