50 million shares: Are Tatas buying 1.73% in Tata Motors ahead of EGM voting?

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Morgan Stanley will buy 50 million shares (1.73 per cent stake) in Tata Motors on behalf of an undisclosed client on Tuesday. The shares will be bought at an upper cap of Rs 499.8 per share, nearly a 10 per cent premium to Monday’s closing price on BSE of Rs 454.55. At least three persons in the know said Tatas were the buyer to gain an edge in the EGM voting. A Tata Sons spokesperson said he was not aware of the development. The deal comes days ahead of an EGM called by the automaker at Tata Sons’ request to oust Tata Motors Chairman Cyrus Mistry from the board.  At the top end, the deal size translates into Rs 2,500 crore.

On December 22, shareholders of Tata Motors will vote on a resolution to remove Cyrus Mistry and Nusli Wadia as directors of the company. Tata Motors’ ADR (American depository receipt) soared nearly five per cent in the US following reports of the deal. Shares of Tata Motors had ended two per cent lower on Monday in the domestic market. 

The share purchase deal on Tuesday is over 15 times the average delivery-based volume in Tata Motors on both exchanges. In the past one month, an average 8.34 million shares of Tata Motors have changed hands on a daily basis, of which 3.26 million shares were delivery-based. 

“If Tatas are indeed the buyer, they may have done the math, and the additional stake that it will could swing their vote in their favour. They may have got commitments from institutional investors but may be falling short by some amount,” said an investment banker.  A head of research at a domestic brokerage said the foreign institutional holding in Tata Motors was significantly higher than in other Tata companies. 

Besides ordinary shares, Tata Motors also has shares with differential voting rights as well which carry one voting right per 10 shares, which amounts to 1.73 per cent of the total voting capital. After considering DVRs, the promoter group has voting rights of 32.43 per cent stake in Tata Motors, while foreign portfolio investors own 26.7 per cent in the Indian shares and another 18.15 per cent in the ADR. Life Insurance Corporation has 5.11 voting rights. Other insurers and mutual funds own over 9 per cent of the voting capital, while retail shareholders and others own 8.55 per cent. 

An ordinary resolution, such as the removal of a director, requires a simple majority (50 per cent plus one vote). In case of Tata Motors, the promoters would need another 17.57 per cent support from public shareholders to pass the resolution on Mistry and Wadia.  The cut-off date to vote at the EGM is December 15. The deal to acquire 1.73 per cent will be done through a reverse book-building process. Market players said this was an unusual way to buy shares. 

“The identity of the buyer is being preserved perhaps to avoid any knee-jerk reaction to the stock. If the stock price surges ahead of the offer price, there may not be too many sellers who would be willing to tender their shares. In such as event, the buyer will have to launch another block deal with a higher price,” said a broker.