This week's putsch at Tata Sons has already served one useful purpose. While it's been clear for a while that something wasn't quite right at the $100 billion Indian empire , the chairman's surprise ouster has made it possible to start asking questions about strategy (or lack of it) at a conglomerate that traces its roots to the American civil war.
Did the newly dumped Cyrus Mistry fail to plant enough saplings of growth? Or did Ratan Tata, who gave Mistry the job only to take it back four years later, not want to face reality? Are some of the businesses he acquired now covered in weeds, compelling Mistry to trim the outgrowth of debt?
The answers will be important for investors in the group's publicly traded units, who, at present, have no idea how the coup at the holding company will affect them.
Letting Tata vs. Mistry play out in public is a delicious idea. With the Economic Times leaking the contents of an unhappy email purportedly written by Mistry to the Tata Sons board and owners, and at least one of those shareholders giving a TV interview on what they disliked about the Mistry regime, the slugfest has begun. It's time to pour a cup of (Tata-owned) Tetley tea, and settle down.
V.R. Mehta, a trustee at one of the philanthropic organizations that collectively own roughly two-thirds of Tata Sons, is right to argue that under Mistry, the dividends from group companies have become increasingly reliant on just two businesses -- Jaguar Land Rover, one of Ratan Tata's most audacious acquisitions, and Tata Consultancy Services Ltd., the software export unit.
But to what extent is Mistry responsible? In the letter attributed to him by the Economic Times, the ousted chairman claimed that it was Ratan Tata's 2009 decision to buy a property in suburban Mumbai -- in disuse since a 1993 bomb attack -- that led to Indian Hotels Co.'s entire net worth getting wiped out. The company's last big profit, of $115 million, was in 2008.
Then again, a year after Ratan Tata bought Corus Group Plc in 2006, Tata Steel went on to earn an annual profit of almost $3 billion. A China-led global steel glut has turned that profit into a loss of $1 billion over the past four quarters, with Mistry warning in his letter of a potential $10 billion impairment of European steel assets.
Mistry can't shift all the blame to his predecessor. While Ratan Tata's non-JLR car investments have mostly flopped, Mistry's problem was not having enough big ideas of his own. He may not have been the one to sink the wireless telecom unit, but he did precious little to revive it. He could also have handled the ugly spat with NTT Docomo Inc., the partner in that business, a lot better.
The Tata Group has survived two world wars, nationalization of its prized airline by a socialist-minded government and other tribulations. But the damage to the group's reputation for fair dealing is probably Mistry's biggest failing as chairman.
That failure has consequences. In Singapore, bond investors are scratching their heads over a dollar-denominated perpetual bond issue by Tata International Ltd. The debt of this thinly capitalized company will derive its value from implicit support by the Tata Group. A few years ago, it would have been preposterous to suggest that the Tatas would stake their reputation to save $1.17 billion -- the amount the group is seeking to avoid paying in the Docomo dispute. It's worrisome if investors are no longer sure whether the group will even back a $150 million to $200 million bond issue.
A no-holds-barred airing of differences between Mistry and Ratan Tata may help reestablish just what it is that shareholders of Tata Sons want their group to stand for. That will be the cherry on the cake from this entertaining spectacle -- to be washed down with that Tetley tea, of course.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
The 27 listed Tata companies have annual revenue of about $95 billion. The group is in about 100 businesses.
The founder of the Tata Group garnered the seed capital for his empire from a global cotton shortage caused by the civil war.
The proceeds will be used to repay Singapore dollar debt that the company is making a third attempt to buy back at prices that at least some investors find to be too cheap.
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Andy Mukherjee in Singapore at firstname.lastname@example.org
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