16 December 2016 the CornerOffice 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 SHP of Tata Sons Ltd. 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- Market cap of 26 listed Tata grp Cos (INR b) 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 Source: Capitalline significantly high in all the companies (except TCS); institutional investors, will therefore, play a critical role. Sandeep Gupta ([email protected]); +9122 3982 5544 Mehul Parikh ([email protected]); +91226129 1558 / Somil Shah ([email protected]); 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. the Corner Office 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 Date Event 8-Aug . Mr Ratan Tata, Chairman of Tata Trusts, nominates Mr Venu Srinivasan and Mr Ajay Piramal as additonal directors on Tata Sons’ board. 25-Aug . At the AGM of Tata Sons, Mr Srinivasan and Mr Piramal are confirmed as directors by shareholders. 26-Aug . 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. 24-Oct . 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. 25-Oct . 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. 1-Nov . 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. 4-Nov . Independent directors of Indian Hotels unanimously back Mr Mistry as Chairman of the company. 5-Nov . Tata Motors defends and clarifies credit and accounting practices related to the Nano car and Tata Motors Finance, its vehicle finance arm. 10-Nov . 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. 11-Nov . 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. 13-Nov . 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. 14-Nov . 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. 15-Nov . 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. 17-Nov . TCS board meets and fixes December 13 as the date for the extraordinary general meeting to remove Mr Mistry as director. 16 December 2016 2 the orner ffice C O Date Event 21-Nov . 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. 22-Nov . Mr Cyrus Mistry claims Mr Ratan Tata once tried to sell TCS to IBM. 23-Nov . 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. 25-Nov . 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. 5-Dec . 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. 7-Dec . 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. 12-Dec . Mr Cyrus Mistry removed as director of Tata Industries Ltd. (an unlisted entity) 13-Dec . In TCS’ EGM, the majority shareholders vote to remove Mr Mistry as director of the company. 14-Dec . Mr Cyrus Mistry removed as director of Tata Teleservices (unlisted entity). Source: Press releases, Company, MOSL Exhibit 2: Shareholding pattern of concerned Tata Group companies (%) Tata Global Particulars Tata Motors Beverages Tata Power Indian Hotels Tata Steel Tata Chemicals TCS* EGM date 22-Dec-16 - 26-Dec-16 20-Dec-16 21-Dec-16 23-Dec-16 13-Dec-16 Promoters 33 36 33 39 31 31 73 Institutions 41 35 51 39 42 48 22 Central Government 0 0 0 - 0 1 0 Non-institutions 26 30 16 22 27 21 4 Total 100 100 100 100 100 100 100 Note: SHP as on 30th Sep 2016.