16 December 2016
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the
Tata-Mistry boardroom battle
A compilation of key developments
The Tata Group, India’s largest conglomerate group, has recently witnessed several differences
of opinion among its top management. On October 24, 2016, Tata Sons announced the ouster
of Mr Cyrus Mistry as its Chairman (though he remains a director on the board). Non-
performance, attempting to gain control, and taking critical decisions without keeping Tata
Sons’ board informed were cited as the reasons. On requisition from Tata Sons, various Tata
Group companies have called for an EGM to evict Mr Mistry as a director. Institutional
investors’ votes are likely to play a decisive role in the outcome of this resolution in some of
the companies. We summarize the series of events /relevant information that investors might
find handy for their decision making.
Tata trusts have significant say in India’s largest group
The Tata Group, which includes among others, 26 listed entities accounting for ~7%
of the BSE’s total market capitalization, is India’s largest conglomerate group. Tata
Sons is the Group’s unlisted holding company. About 66% of Tata Sons’ equity
capital is held by philanthropic trusts endowed by members of the Tata family. Tata
trusts have the power to appoint one-third of Tata Sons’ directors. Any item that
requires approval of Tata Sons’ board needs to be ratified by a majority of its trust-
nominated directors. Further, Tata trusts have the power to nominate majority of
members on the committee constituted for appointment/removal of the Chairman.
Tata Sons ousts Mr Mistry from Chairmanship
On October 24, 2016, Tata Sons’ board ousted Mr Cyrus Mistry from Chairmanship,
citing non-performance, attempting to gain control, and taking critical decisions
without keeping the board informed. Since then, Mr Mistry has made counter-
representations citing legacy issues, lack of freedom, and other issues relating to the
Group’s functioning.
Institutional investors to play decisive role at EGMs
Mr Mistry was the Chairman of seven listed Tata Group companies before being
ousted as Chairman of Tata Sons. Since then, he has lost three of these
chairmanships. Further, six listed Tata Group entities have called EGMs to evict Mr
Mistry from directorship. Such a resolution requires a simple majority approval of
shareholders voting. We note that institutional ownership (Refer Exhibit 2) is
significantly high in all the companies (except TCS); institutional investors, will
therefore, play a critical role.
SHP of Tata Sons Ltd.
Market cap of 26 listed Tata
grp Cos (INR b)
Source: Capitalline
Sandeep Gupta
(S.Gupta@MotilalOswal.com); +9122 3982 5544
Mehul Parikh
(Mehul.Parikh@MotilalOswal.com); +91226129 1558
/
Somil Shah
(Somil.Shah@MotilalOswal.com); 9122 3312 4975
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

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Timeline of significant events at Tata Group
Below is the timeline of events relating to Mr Mistry’s ouster.
Exhibit 1:
Timeline of events concerning Tata group
the
Date
8-Aug
25-Aug
26-Aug
24-Oct
Event
Mr Ratan Tata, Chairman of Tata Trusts, nominates Mr Venu Srinivasan and Mr Ajay Piramal as additonal directors on Tata
Sons’ board.
At the AGM of Tata Sons, Mr Srinivasan and Mr Piramal are confirmed as directors by shareholders.
Mr Amit Chandra is nominated as a director in Tata Sons by Tata Trusts, which have the power to recommend one-third of
the board of directors in the holding company.
Mr Cyrus Mistry is ousted as Chairman of Tata Sons and replaced by Mr Ratan Tata as Interim Chairman. A search
committee is constituted
to
find a replacement.
The group
executive
council (GEC), which advised the Chairman, is disbanded. Mr Nirmalya Kumar, Mr Madhu Kannan
and Mr NS Rajan are asked to leave, while Mr Mukund Rajan and Mr Harish Bhat are retained.
Mr Mistry writes an email to the board of Tata Sons, which gets leaked. In his email, Mr Mistry warns of a potential USD18
billion write-down faced by the Group.
Mr Ratan Tata calls for a meeting of Tata Group CEOs. Also meets investors to assure them that it is “business as usual.”
The Tata Group files caveats in the courts seeking advance notice from Mr Mistry if in case Mr Mistry were to initiate legal
action.
Mr Mistry’s office releases a statement rebutting allegations that he kept the Tata trustees in the dark on transactions such
as Tata Power Company’s purchase of Welspun Renewable Energy and his handling of a spat with NTT DoCoMo Inc.
Mr Ratan Tata writes a letter to the staff of Tata Group companies saying that the removal of Mr Mistry was “absolutely
necessary for the future success of the Tata group”.
Indian Hotels says that Mr NS Rajan has resigned from its board. Tata Chemicals informs bourses that Mr Nirmalya Kumar
has stepped down from its board.
Independent directors of Indian Hotels unanimously back Mr Mistry as Chairman of the company.
Tata Motors defends and clarifies credit and accounting practices related to the
Nano
car and Tata Motors Finance, its
vehicle finance arm.
Tata Sons replaces Mr Mistry as Chairman of Tata Consultancy Services with Mr Ishaat Hussain as Interim Chairman.
Separately, it calls for a shareholders’ meeting of Indian Hotels to pass a resolution for the removal of Mr Mistry as director.
Tata Sons releases a nine-page statement detailing reasons why Mr Mistry was ousted.
It accuses Mr Mistry of betraying the trust reposed in him and seeking to control the main operating companies of the Tata
Group “to the exclusion of Tata Sons and other Tata representatives”.
Independent directors of Tata Chemicals, including Mr Nusli Wadia, back Mr Mistry as Chairman, citing their evaluation of
his performance for the past couple of years.
Tata Sons moves resolutions to eject Mr Mistry and Mr Wadia as directors of Tata Steel, Tata Chemicals and Tata Motors.
Mr Bhaskar Bhat, a non-independent director on the board of Tata Chemicals, resigns, saying the content in the statement
by independent directors ‘dilutes’ his views expressed in the board meeting.
Mr Mistry’s office rebuts charges that he was trying to gain control of Tata firms; says a new structure was created with an
eye on improving transparency and reflects “generational change”.
Tata Sons says it will do whatever is necessary to deal with the fallout of Mr Mistry’s ouster; asks independent directors to
ensure future of Tata companies and interest of all stakeholders is protected.
Independent directors at Tata Motors refuse to take sides, saying the auto maker’s board was collectively responsible for all
decisions relating to strategy and operations.
Mr Cyrus Mistry questions Tata Son’s investments in certain companies, high public relations (PR) costs, the compensation
of Ratan Tata and the practice of directors drawing commissions from operating companies.
Seven out of ten directors at Tata Global Beverages board meeting vote for removal of Mr Cyrus Mistry as Chairman.
TCS board meets and fixes December 13 as the date for the extraordinary general meeting to remove Mr Mistry as director.
25-Oct
1-Nov
4-Nov
5-Nov
10-Nov
11-Nov
13-Nov
14-Nov
15-Nov
17-Nov
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Date
21-Nov
the
Event
TCS issues EGM notice; says company board agrees with Tata Sons’ explanation seeking Mr Mistry’s removal. Mr Mistry’s
conduct, upon his removal as Executive Chairman of Tata Sons, has caused enormous harm to Tata Group, company and
stakeholders, including employees and shareholders, says the filing to BSE.
Mr Nusli Wadia writes a letter to Tata Sons directors saying that the move to seek his expulsion is “false, defamatory,
baseless and libelous”, pointing out that the allegations have been made with intent to harm his reputation; gives Tata two
days’ notice to withdraw resolution.
Mr Cyrus Mistry claims Mr Ratan Tata once tried to sell TCS to IBM.
Mr FC Kohli clarifies that Tata Group had no intentions to sell TCS.
Mr B Muthuram says “surprised and very sad” about Corus allegations; Tata Steel’s long-term strategy was to grow
inorganically.
Tata Steel passes a circular resolution to remove Mr Mistry and replaces him with Mr O P Bhatt as Interim Chairman.
Tata Global Beverages passes circular resolution to remove Mr Cyrus Mistry as Chairman.
Mr Cyrus Mistry makes a representation to shareholders of several Tata Group companies; urges them to support him.
Further, says Tata Group is nobody's personal fiefdom.
Requests for government intervention in the functioning of Tata Trusts.
Mr Ratan Tata appeals to shareholders to support the EGM resolution, removing Mr Mistry as director of Tata Group
companies.
Further, says Mr Mistry's presence on the boards of Tata Group companies is a serious disruptive influence, which can make
them dysfunctional, given his open hostility towards Tata Sons.
Mr Cyrus Mistry removed as director of Tata Industries Ltd. (an unlisted entity)
In TCS’ EGM, the majority shareholders vote to remove Mr Mistry as director of the company.
Mr Cyrus Mistry removed as director of Tata Teleservices (unlisted entity).
Source: Press releases, Company, MOSL
22-Nov
23-Nov
25-Nov
5-Dec
7-Dec
12-Dec
13-Dec
14-Dec
Exhibit 2:
Shareholding pattern of concerned Tata Group companies (%)
Particulars
EGM date
Promoters
Institutions
Central Government
Non-institutions
Total
th
Tata Motors
22-Dec-16
33
41
0
26
100
Tata Global
Beverages
-
36
35
0
30
100
Tata Power
26-Dec-16
33
51
0
16
100
Indian Hotels
20-Dec-16
39
39
-
22
100
Tata Steel
21-Dec-16
31
42
0
27
100
Tata Chemicals
23-Dec-16
31
48
1
21
100
TCS*
13-Dec-16
73
22
0
4
100
Note: SHP as on 30 Sep 2016.
*Resolution for removal of Mr Mistry as director has been approved in the EGM
Source: Company, MOSL
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Tata Group – the largest conglomerate in India
The Tata Group is India’s largest conglomerate groups. The 26 listed Tata Group
entities account for ~7% of BSE’s total market capitalization. Any significant
events in the Group are likely to impact its ~4m shareholders.
Exhibit 3:
Tata Group – the largest conglomerate in India
the
~7% of BSE's total market capitalization
INR7,831b market captialization of 27
listed Tata group companies
~4m Shareholders across all companies
*Market cap as on 15 December 2016
th
Source: Company, Capital Line, MOSL
Exhibit 4:
Market capitalization and SHP of listed Tata group companies
Market Cap
Institutional
Promoter
Others
Total
(INR b)
Investors
TCS
4,452
73%
22%
4%
100%
Tata Motors
1,489
33%
41%
26%
100%
Tata Motors-DVR
151
0%
85%
15%
100%
Tata Steel
407
31%
42%
27%
100%
Titan Company
280
53%
27%
20%
100%
Tata Power Co.
212
33%
51%
16%
100%
Tata Comm
180
75%
20%
5%
100%
Tata Chemicals
122
31%
48%
21%
100%
Voltas
107
30%
50%
20%
100%
Indian Hotels
98
39%
39%
22%
100%
Tata Global
79
34%
37%
29%
100%
Trent
66
33%
43%
25%
100%
Tata Elxsi
45
45%
15%
41%
100%
Rallis India
38
50%
19%
31%
100%
Tata Inv.Corpn.
31
73%
6%
21%
100%
Tata Coffee
21
57%
6%
36%
100%
Tata Tele. Mah.
12
75%
1%
24%
100%
Tata Sponge Iron
9
55%
4%
42%
100%
Tata Metaliks
9
50%
4%
46%
100%
Tinplate Co.
8
75%
2%
23%
100%
Oriental Hotels
4
62%
17%
21%
100%
Auto. Corp.of Goa
4
54%
1%
46%
100%
TRF
2
34%
8%
58%
100%
NELCO
2
50%
5%
45%
100%
Benares Hotels
1
63%
0%
37%
100%
Automotive Stamp
1
75%
3%
22%
100%
Tayo Rolls
1
73%
0%
27%
100%
Total market capital
7,831
th
th
Note: SHP as on 30 Sep 2016, Market cap as on 15 December 2016 Source: Capital Line, MOSL
Company
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Tata Sons – unlisted, yet highly influential
Tata Sons is the promoter of the Tata Group and holds significant stake in group
companies. It is not listed on stock exchanges.
It also owns the Tata brand and several other Tata trademarks registered in
India and around the world. These are used by various Tata companies under a
license from Tata Sons.
the
Tata Trusts – primary promoters of Tata Sons…
About 66% of Tata Sons’ equity capital is held by philanthropic trusts endowed
by members of the Tata family. The largest of these trusts are the Sir Dorabji
Tata Trust and the Sir Ratan Tata Trust.
Exhibit 5:
Shareholding pattern of Tata Sons
Equity shareholders of Tata Sons
Sir Dorabji Tata Trust
Sir Ratan Tata Trust
Other allied Tata Trusts
Shapoorji Paloonji group
Others (Primarily Investment arm, Tata group companies
and family members of Tata Group)
Total
Holdings
28.0%
23.6%
14.4%
18.4%
15.7%
100%
Source: ROC, MOSL
65.9%
Exhibit 6:
Tata Trusts that own majority of Tata Sons
Sir Ratan Tata Trust & Allied
Trusts
•
•
•
•
•
Sir Ratan Tata Trust
Tata Education and Development Trust
Navajbai Rata Tata Trust
Sarvajanik Seva Trust
Bai Hirabai J.N. Tata Navsari Charitable institution
Sir Dorabji Tata Trust &
Allied Trusts
•Sir
Dorabji Tata Trust
•
JRD Tata Trust
•
Jamsethji Tata Trust
•
RD Tata Trust
•
Lady Tata Memorial Trust
•
Tata Social Welfare Trust
•
Tata Education Trust
•
The JRD & Thehma J Tata
•
JN Tata Endownment
Source: Company, MOSL
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…have significant control
Tata Trusts have powers to appoint one-third of the directors of Tata Sons, as
long as the Trusts have at least 40% shareholding in Tata Sons.
Further, the committee for appointment/removal of Chairman of the Board of
Tata Sons has majority representation of Tata Trusts (3 out of 5 committee
members to be nominated by Tata Trusts).
The majority of the nominated directors of the trust have to approve any item
that requires approval of the Tata Sons board (like an annual plan, five-year
strategic plan, proposed investments exceeding INR1b if not approved by annual
plan, proposed debt if it exceeds twice the net worth of Tata Sons, matters
affecting shareholding of Tata Trusts, exercise of voting rights by Tata Sons in
any Tata company, appointment of a representative of Tata Sons).
While these powers help protect the interests of the Trusts, they also makes the
Chairman not just answerable to the Tata Sons board, but also to the board of
Tata Trusts.
The Tata Sons board currently comprises of 12 members; of these, 5 members
have been appointed during FY17. We note that of the new appointees, two
members have been inducted after October 24, 2016 (post ouster of Mr Cyrus
Mistry as Chairman).
Exhibit 7:
Composition of Tata Sons board
Old appointees
Mr Ratan Tata (Interim Chairman)
Mr Cyrus Mistry (Nominated by Shapoorji Paloonji Group)
Mr Ishaat Hussain
Mr Vijay Singh
Mr Nitin Nohria
Mr Ronen Sen
Ms Farida Khambata
New appointees
(Before ouster of Mr Cyrus Mistry)
(After ouster of Mr Cyrus Mistry)
Mr Ajay Piramal #
Mr N Chandrasekaran *
Mr Venu Shrinivasan #
Mr Ralf Speth *
Mr Amit Chandra ^
the
Note- #: appointed on August 25, 2016; ^: appointed on August 26, 2016; *: appointed on October 25, 2016
Source: Company, MOSL
Mr Mistry appointed as Chairman in 2012
A committee comprising of Mr R K Krishna Kumar, Mr N A Soonawala, Ms Shirin
Bharucha, and Lord Kumar Bhattacharya had unanimously decided that Mr
Cyrus Mistry be appointed as the Chairman of Tata Sons after the retirement of
Mr Ratan Tata in December 2012.
On his appointment, Mr Mistry had stated, “I am aware that an enormous
responsibility, with a great legacy, has been entrusted to me. I look forward to
Mr Tata’s guidance in the year ahead in meeting the expectations of the group.”
Mr Ratan Tata had at that time praised Mr Mistry for his leadership qualities,
saying that he was impressed with Mr Mistry’s "astute observations and
humility" and that the "quality and caliber" of Mr Mistry's participation had
impressed him.
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Tata Sons ousts Mr Mistry from Chairmanship in Oct-16
On October 24, 2016, Tata Sons’ board ousted Mr Cyrus Mistry from
Chairmanship, citing non-performance, attempting to gain control, and taking
critical decisions without keeping the board informed.
Following are the highlights from various press releases and media articles citing
reasons for Mr Mistry’s ouster:
Non-performance
Dividends received from all the 40 Tata Group companies (ex TCS) have
continuously declined from INR10b in FY13 to INR7.8b in FY16.
Tata Sons would have reported operating losses for the last three years, but
for dividend received from TCS.
Over FY12-15, expenses on staff increased from INR0.8b to INR1.8b, while
other expenses have increased from INR2.2b to INR2.9b.
Impairment provisions increased from INR2b in FY13 to INR24b in FY16.
No significant divestments from Tata Sons’ portfolio, despite a planned list
of divestments.
No major improvement in the performance of three major problem
companies – Tata Steel Europe, Tata Teleservices / DoCoMo, and the Indian
operations of Tata Motors.
Group indebtedness has increased by INR699b to INR2,257b over the last
four years.
Despite huge investments by companies, the returns are not visible in
increased profits.
Attempting to gain control
Mr Mistry remained the only Tata Sons representative on the board of
Indian Hotels (IHCL), limiting Tata Sons’ ability to exercise influence and
control on IHCL.
Taking critical investment decisions without keeping Tata Sons board informed
Critical investment decisions such as Tata Power’s purchase of Welspun
Renewable Energy were made without keeping Tata Sons board in the loop.
Unimpressive handling of the spat with NTT Docomo Inc.
Mr Mistry’s representation on the issue
Since his ouster as the Chairman of Tata Sons, Mr Mistry has made several
representations to counter the above, citing problems from the past, lack of
freedom, and other issues relating to the Group’s functioning. He has also
requested the government to intervene in the functioning of Tata Trusts.
We have summarized below extracts from several letters (to Tata Sons board
and shareholders of certain Tata companies), press releases and media
statements by Mr Mistry:
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Lack of freedom
Mr Mistry says he was pushed into the position of a 'Lame Duck' Chairman.
“Nano” has consistently lost money. Emotional reasons have kept the Group
from closing down the Tata Nano Project.
Mr Mistry had made his objections known on the airline venture with
AirAsia. Was promised Tata Sons’ investments in Air Asia India would be
capped at 30% of equity. However, the stake was later increased to 49%.
Problems from the past
Original Tata Docomo deal structure raises many questions about its
prudence.
Tata Power aggressively bid for the Mundra Project. Today, it carries risk of
considerable impairment.
Tata's decision to acquire steelmaker Corus for more than USD12 billion,
when a year earlier it was available at half the price, went against the
reservations of some board members and senior executives.
Others
A realistic assessment of five Tata companies – IHCL, Tata Motors, Tata Steel
Europe, Mundra and Tata Tele – can lead to ~USD18b write-down.
Mr Ratan Tata had pitched for selling TCS to IBM, a ‘near death experience’
for the Group’s crown jewel.
Mr Mistry questioned Tata Sons (a) investments in certain companies, (b)
high public relations expense, (c) Mr Ratan Tata’s compensation, and (d) the
practice of directors drawing commissions from operating companies.
Nano project supplies equipment to a company that Mr Ratan Tata has a
stake in.
the
Seven listed companies directly impacted
Of the 27 listed Tata group companies, seven companies had Mr Cyrus Mistry on
their board before he was ousted from the Chairmanship of Tata Sons.
Exhibit 8:
Companies having/had Mr Cyrus Mistry as Chairman/Director
Tata
Motors
Tata Global
Beverages
Tata Power
Indian
Hotels
Tata
Steel
TCS
Tata
Chemicals
Source: Company, MOSL
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Corporate actions at Tata Group companies
These seven listed entities have witnessed several corporate actions recently.
Further, many of the Tata Group companies having Mr Mistry on their board
have been given notice to call for an EGM for removal of Mr Mistry from
directorship.
Below is a highlight of events that have happened in the immediate past as well
as those on the agenda of upcoming EGMs.
Exhibit 9:
Events at listed Tata Group entities involving Mr Cyrus Mistry
Sr. Company
No.
1 TCS
Present
Outcome of board meeting / resolutions adopted /
Upcoming events
Chairman
special events
Mr Ishaat Hussain (a) Tata Sons nominates Mr Ishaat Hussain as the
Chairman of the Board of Directors of the Company
in place of Mr Cyrus P Mistry on November 10, 2016.
(b) Shareholders’ EGM on December 13, 2016 passes
resolution to remove Mr. Mistry as a director.
Mr Cyrus Mistry
Independent directors at Tata Motors refuse to take
EGM to be convened on December 22,
sides, saying the board was collectively responsible
2016 for removal of Mr Cyrus Mistry
for all decisions relating to strategy, operations and
and Mr Nusli Wadia as Directors.
business, which were unanimous and executed by the
Chairman and management accordingly.
Mr Cyrus Mistry
(a) Mr Bhaskar Bhat, Non-Executive, Non Independent EGM to be convened on December 23,
Director resigns from the Board with effect from
2016 for deliberating removal of Mr
November 10, 2016. Cites reason as ignorance of
Cyrus Mistry as Director.
concerns raised by him by the board. Nirmalya Kumar
resigns as Director on November 1, 2016.
(b) Independent directors unanimously back Mr Cyrus
Mistry as Chairman.
Mr Harish Bhat
(a) 7 out of 10 directors vote for removal of Mr Cyrus
Mistry as Chairman.
(b) Mr Harish Bhatt, Non-Executive Director, appointed
as Chairman.
Mr Cyrus Mistry
Independent directors unanimously express full
EGM to be convened on December 20,
confidence in Chairman, Mr Cyrus Mistry and praise the 2016 for deliberating removal of Mr
steps taken by him in providing strategic direction and Cyrus Mistry as Director.
leadership to the company. N S Rajan resigns as Director
(wef October 28, 2016).
Mr O P Bhatt
Mr O P Bhatt replaces Mr Cyrus Mistry as
EGM to be convened on December 21,
Chairman on November 25, 2016.
2016 for deliberating removal of Mr
Cyrus Mistry and Mr Nusli Wadia as
Directors.
Mr Cyrus Mistry
Mr Cyrus Mistry remains Chairman post the board
EGM to be convened on December 26,
meeting on November 29, 2016, as no resolution
2016 for deliberating removal of Mr
brought by any director concerning his removal.
Cyrus Mistry as Director.
Source: Company, MOSL
the
2
Tata Motors
3
Tata Chemicals
4
Tata Global
Beverages
Indian Hotels
5
6
Tata Steel
7
Tata Power
Institutional investors to play decisive role at EGMs
To evict Mr Cyrus Mistry as a director (nominee of Tata Sons), EGMs have been
called for in various Tata Group companies. We highlight that institutional
investors will play a critical role in the decision making in few of the companies.
Following is the process to be followed for removal of a director.
A special notice has to be given to the company to convene an extra-
ordinary general meeting of its shareholders to consider the removal of the
concerned director by shareholder/s holding not less than 1% of voting
rights or shares with paid-up capital being not less than INR0.5m.
An ordinary resolution is required to be passed with simple majority
(implying 51% of votes in favor by voting shareholders).
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All the shareholders including the ones giving the special notice to convene
the meeting are eligible to vote.
In TCS’s EGM held on December 13
th
, 2016 the majority shareholders voted to
remove Mr. Mistry as director of the company.
We note that in several of these companies, institutional ownership is quite
high. Institutional investors will play a critical role in the outcome of the
resolution.
the
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NOTES
the
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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
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Contact : (+65) 68189232
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Motilal Oswal Securities Ltd
16 December 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
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