InvestorQ : Will the exit of Mistry family from Tata Sons impact the Tata group in any way?
diksha shah made post

Will the exit of Mistry family from Tata Sons impact the Tata group in any way?

swati Bakhda answered.
7 months ago

A day after the Tatas made an offer to buy out the Mistry stake in Tata Sons, Pallonji Mistry made a statement saying that he did not see much purpose in continuing with their alliance. That clearly paves the way for the parting of ways between Tatas and Mistry families.

For Mistry family, this is the right decision at the right time. Clearly, there seems to be no scope for any rapprochement. The Mistry family has substantially earned rewards from their Tata stake and they have themselves expressed doubts about the business strategy.

To an extent this is what the Tatas always wanted since 2016. They wanted the Mistry family out and have offered to buy out the Mistry family stake in Tata Sons. That could give absolute control to the Tatas but there will be numerous challenges along the way.

To begin with, if the Tatas want to buy out the entire 18.4% stake of the Mistry Group, it would be worth close to Rs.180,000 crore, on paper. Pallonji may even expect a decent premium for such a large block and also considering that it gives near absolute control.

Tatas may bargain on two counts. Firstly, they may say that the impact of debt is not factored into the valuations shown by the Mistry family. Secondly, they may also insist on a holding company discount for the same. Either ways, negotiations will be long drawn.

It can be said that the Tatas may have an upper hand as the Mistry group is crunched for funds. However, it must be remembered that Mistry family has effective control over 13.3% of TCS, which is nearly half of the total free float of the stock.

In other words, to fund the purchase of the Mistry stake Tatas may have to sell part of its stake in TCS, which is the real family silver. The bigger challenge will be that the other companies will now have to start performing and reduce dependence on TCS alone.