InvestorQ : When the Tatas and the Mistry families split, how will the stake in Tata Sons be valued?
indhumathi Sayani made post

When the Tatas and the Mistry families split, how will the stake in Tata Sons be valued?

8 months ago

With the split now almost a certainty, the battle gets down to the next big question; what will be the valuation of Tata Sons and what will be the formula. It needs to be remembered that Shapoorji Pallonji Group holds 18.4% of the Tata Sons holding company.

The Pallonji group has agreed to sell their stake after they felt that their continuation on the board of Tata Sons was not tenable due to the deteriorating relations between the two families. The big question now boils down to the valuation of the stake.

While there are no clear benchmarks, the amount mentioned in recent court filings is Rs.150,000 crore for the 18.4% Mistry stake or close to $20.3 billion. Of course, Mistry will seek a control premium from the Tatas while the Tatas will want to bargain for a holding company discount.

The Pallonji group will prefer a quick deal as they have upcoming bonds maturing and will not want to default in these conditions. For the Tatas, the big challenge will be how to arrange the funds to buy the stake because $20 billion is big money after all.

Experts perceive that private equity investors will be less willing to buy a stake in a private limited company with no easy exit. Also, no fund can afford to get stuck in a stake like the Mistry family. Also, whosoever buys the stake Tatas will still have the right of first refusal.

Currently, nearly 66% of Tata Sons is owned by Tata Trusts; a collective of charities headed by Ratan Tata. However, it cannot buy more shares on its own. Back in 2016, the Mistry family was not keen to sell but now even Pallonji Mistry is reconciled to bid adieu to the Tata group.

The final shape of the deal could be interesting. If no outside partner comes in, then Tatas may have to either arrange the funds or do a swap of TCS shares against Tata Sons stake. If that is not possible, then the Tatas may have to permit the Mistry family to pledge their stake. Mistry needs the funds with group debt in excess of Rs.30,000 crore.