Tata Sons Ltd may offer as much as $3 billion ( ₹21,900 crore) to buy a part of the Mistry family’s 18.4% stake in the Tata group holding company, two people aware of the matter said.
India’s largest conglomerate will likely table the offer on 28 October in the Supreme Court where a legal dispute between it and the Mistry family’s Shapoorji Pallonji (SP) Group is scheduled to be heard, the people cited above said, requesting anonymity as the discussions are private.
A major part of the funds needed by Tata Sons has been arranged, with unit Tata Consultancy Services Ltd, in which the parent owns a 72% stake, announcing a buyback of shares. Tata Sons is expected to get up to ₹11,528 crore from the share buyback.
Without the buyback, Tata Sons would have needed to sell a substantial stake in TCS, the Institutional Investor Advisory Services (IiAS) said in a note on 23 April.
The sale of a 16% stake in TCS would have weakened Tata Sons’ ability to hold the group together, IIAS added.
The funds from TCS will be used to buy out part of the Mistry stake, the people cited above said.
Tata Sons is also in talks with external investors, including sovereign and pension funds, to arrange buyers for the Mistry family stake, and some clarity in this regard is expected to emerge in the next two weeks, said one of the two people cited above.
“While there is significant investor interest in buying the stake, mapping the exit road map for the potential investor is crucial, given the fact that Tata Sons is a private entity,” the person said, adding that Tata Sons may include a buyback clause for the stake at a later date.
Article 75 of Articles of Association gives Tata Sons power over external investors to ensure shares are acquired only by chosen investors.
On Tuesday, the board of TCS, India’s second most valuable company after Reliance Industries Ltd, approved the buyback of shares for an amount not exceeding ₹16,000 crore.
TCS also announced an interim dividend of ₹12 per share, which will add ₹3,244 crore to Tata Sons’ kitty.
A spokesperson for Tata Sons declined to comment.
“While the Mistry family may not be against selling the stake in a staggered manner, their final decision will depend on the valuation offered by Tata Sons,’’ said the second person. “It is expected that Tata Sons’ offer will factor in a holding company or conglomerate discount, but it’s unclear whether the Mistrys will accept the proposal,” the second person added.
A holding company discount typically refers to the tendency of markets valuing a conglomerate at less than the sum of its parts.
Mint had reported on 29 September, that the Shapoorji Pallonji Group is expected to seek a separation from Tata Sons, making it a part of the plea for relief it is seeking from the court in a minority shareholder oppression case.
The Mistry family believes that a court-supervised separation will ensure a fair deal to them.
The two groups are valuing the shares of Tata Sons on four parameters—value of listed companies, value of unlisted firms, brand value and debt.
