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Tatas want Nusli Wadia out over fears of takeover

 

Illustration: Ajay Mohanty

Wadia Group Chairman Nusli Wadia Illustration: Ajay Mohanty

 

  The war between the Tatas and the Mistrys has claimed the board seat of Nusli Wadia - the seniormost independent director of Tata Motors, Tata Steel and Tata Chemicals, with companies seeking Wadia’s ouster from their boards along with their Chairman Cyrus Mistry.

 

The Tatas did not give any official reason why they have targeted Wadia, chairman of the Wadia Group of companies, among the other independent directors of these three companies. But insiders said the recent development in the Indian Hotels Company (IHCL), the operators of Taj Group of Hotels, shows Mistry was trying to gain control of IHCL and other operating companies, with the support of independent directors of the board.  The Tata stake in these companies is very low at around 30-39% (see chart) and fear a takeover bid on these companies by the Mistry camp along with help from independent directors. The independent directors and Mistry have denied these allegations.

Besides, insiders said the Tatas were in shock when during the Tata Chemicals board meeting held on Thursday, Wadia threw his weight behind Mistry, arguing in favour to continue as chairman. The arguments by Bhaskar Bhat, a director of Tata Chemicals board that Mistry’s continuance on its board is a risk to the company, was completely ignored by the board leading to Bhat quitting the board. The Tata Chemicals board later gave a statement supporting Mistry as its chairman.

Wadia is the longest-term independent director on Tata Steel and Tata Motors board and was offered the top job as Tata Group chairman in 1990s by J R D Tata but had refused to take it up. Wadia instead had advised J R D to groom Ratan Tata as the chairman. Wadia, in fact, helped Tata remove many Tata Group satraps during the first five years of Tata’s term.

The Tata Motors board, chaired by Mistry, will meet on Monday, while the Tata Steel board met on Friday at Bombay House – the headquarters of the Tata Group. Mistry signed the September quarter account as its chairman.

In a statement, Tata Motors said it has received a notice from Tata Sons, with 26.51% stake in the company, for convening an extraordinary general meeting (EGM) for passing resolutions for the removal of both directors. The Tatas along with other group companies own 33% stake in the company.  Tata Steel and Tata Chemicals also gave similar statements to the stock exchanges for the duo.  According to the Companies Act, the company must act within 21 days and call an EGM, which should be held before 45 days of the requisition. In case the company does not call an EGM, Tata Sons can call an EGM within three months of its requisition.

The Tata Sons board had ousted Mistry as Tata Sons chairman on October 24 that led to an open public fight between Tata and Mistry. Ratan Tata was appointed the interim chairman till a selection panel finds a new chairman. Mistry accused the Tatas of meddling in Tata Group affairs and leading the group to potential write-downs worth $18 billion.

Wadia’s potential ouster from Tata Motors board means other independent directors who supported Mistry in the board meetings of IHCL, and Tata Chemicals may also have to go. The independent directors who supported Mistry from IHCL are corporate doyens, including HDFC Chairman Deepak Parekh, former Hindustan Unilever Chairman Keki Dadiseth and Godrej Group’s Nadir Godrej. Dadiseth is also on the board of Tata Trusts and has supported Mistry.  The independent directors of both IHCL and Tata Chemicals came out in support of Mistry, making statements to the stock exchanges.

Few independent directors of Tata Motors, Tata Steel and IHCL have said Tata is out for Mistry’s scalp for the bad acquisition decisions made by Tata during the last five years of his tenure.  The independent directors also accused Tata of destroying Mistry’s reputation by making him the scapegoat for the bad performance of Tata Steel Europe, loss-making Nano project and Tata Teleservices litigation with DoCoMo. All these three companies were Tata’s legacy, they had said.

On Thursday, Tata Consultancy Services (TCS) also removed Mistry as chairman and appointed old-timer Ishaat Hussain in his place.  TCS and IHCL have also called EGMs to remove Mistry as director of the two companies.

The Mistry camp had retaliated saying “to allege “ulterior motive” of taking over control of companies, giving the example of IHCL only because independent directors - one of whom is also a director of Tata Trust - demonstrated true independence and not in keeping with Tata governance standards.”

  Stake in % as of Sep 2016 Company Promoter Foreign Institutional Investors Insurance firms MF/financial institution/bank Corporate/non-institutional Retail Others Indian Hotels 38.65 13.39 3.47 22.03 7.58 14.02 0.86 Tata Chemicals 30.80 19.33 13.35 14.85 0.00 19.30 2.37 Tata Motors 33.00 26.11 10.36 4.04 18.71 6.21 1.57 Tata Steel 31.35 12.86 19.39 9.84 2.70 21.73 2.13                 For Tata Motors, corporate/non-institutional includes stake of Citibank N.A. New York, ADR Dept                         Source: Capitaline               Compiled by BS Research Bureau