Tatas reject Mistry proposal

After the Mistry family agreed to sell out its stake in Tata Sons, the big question boiled down to valuations. Meanwhile, Mistry had proposed a non-cash deal to the Tatas. Under the proposal, the Tatas will transfer equivalent value of Tata group shares to Mistry family effectively converting their Tata Sons stake into a stake in Tata Group companies. Last week, Harish Salve has already rejected that proposal, which was expected. The idea was to plan an exit for the Mistry family and not to perpetuate their role in the Tata group. Mistry as a minority owner of Tata group companies was a bigger risk for the interests of the Tatas. 

Differing on valuations

Another major issue is the gap in the valuations assigned by both parties to the 18.4% stake held by Mistry family in Tata Sons. While Mistry has pegged the value of that stake at $24 billion, Tatas have assigned a value of just $11 billion to that stake. That is clearly too large a gap to be amicably filled and the details will have to be sorted out. Prima facie, the Mistry family is demanding a share of the brand value of the group, which the Tatas are unwilling to pay. They see the Tata Brand belonging to the Tatas. 

What the Mistry family must do?

One of the contentions presented by the Tata counsel, Harish Salve, was that the Mistry family had substantially benefited from their relationship with the Tatas. That is to a large extent true. The loan given originally may have yielded a lot more for the Mistry family than they would have anticipated. Forget about the billions of dollars they have received as dividends from Tata Sons; the Mistry family construction business has also been a preferred contractor for many of the Tata construction projects. That is a kind of business benefit that is hard to quantify. Also, the association has been a major national and international image booster for the Mistry family. That really cannot be undermined or ignored. 

Real onus is on the Tata group

The legal battle can go on interminably but that adds little value. The best option will be to perhaps convert the Mistry stake into more of an institutional investment with limited role in decision making. They can also be compensated for the same. Effectively, that was the model till Cyrus Mistry was appointed as the chairperson of Tata Sons. The old model of the Mistry family playing passive role in Tata Sons management can continue and that would eventually be to the benefit of both the parties. For most of the past 6 decades, the Mistry family has stood by the Tatas. There is no reason to change the cordiality!