After being at the center of a glaring, and often unkind, media spotlight over the past year, the holding company of India’s $105 billion salt-to-software conglomerate Tata Group is going dark. For closely held Tata Sons Ltd. to change its legal status from a public to a private company is a clever move, though not particularly healthy. The one who stands to lose the most is already complaining. The family of Cyrus Mistry, unceremoniously removed as chairman by patriarch Ratan Tata in a boardroom coup last October, continues to be an 18 percent owner of Tata Sons, second only to the charitable trusts that together hold two-thirds. (Ratan Tata controls those trusts.)
Having tried in vain to hold on to his positions at the publicly traded operating companies from which the group derives the bulk of its profit, Mistry has two choices left. He could stay on and use his voting rights to resume the fight. In April, India’s company law tribunal refused to hear a petition from the ousted chairman alleging oppression of minority investors in Tata Sons. Mistry has appealed against that order. The firm going private would render the plea moot.
His other option is to sell. Back-of-the-envelope calculations by Gadfly pegged the value of his stake at $16 billion. That was last October, when a spurned Mistry was making dire forecasts of huge writedowns across the operating companies. But Tata Steel Ltd. shares have risen 73 percent over the past year as metals demand stabilizes. Meanwhile, Mistry’s successor Natarajan Chandrasekaran is evaluating options to cut debt by winding down the money-losing mobile services unit, according to the Times of India. With the group’s fortunes on the mend, Mistry might ask for a lot more.
Tata Steel shares this year: +73%
A private company can place myriad restrictions on share transfers, making it hard for him to hawk his shares to outside investors. That means he would be forced to negotiate a price with Ratan Tata. While all of this may be clever tactics by Ratan Tata’s camp, it’s a little disconcerting that the patriarch’s maneuver will leave effective control of everything from Tata Motors Ltd. to Tata Consultancy Services Ltd. in the hands of an opaque entity that won’t owe the public any information. If Tata Sons were a financial investor, it wouldn’t matter. But it’s the command center for the conglomerate, and recently hired a group chief financial officer after leaving the position vacant for half a decade.
Allocating capital to publicly owned, board-managed companies, while keeping one’s own decision-making in the dark, doesn’t bode well for governance. Mistry’s charge of lack of professionalism in the Bombay House headquarters has never been sufficiently addressed (he alleged that two directors, including Nitin Nohria, the dean of Harvard Business School, once left a board meeting stranded for an hour to go get instructions from Ratan Tata.)
When Mistry was in charge, he didn’t pursue a proposal to make Tata Sons shares publicly traded, even though Citigroup Inc. had done a study on it. Going in the opposite direction may enable Ratan Tata to consolidate control, but it’s still a regressive move.