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Cyrus Investments, owned by the Mistry family which is a minority shareholder in Tata Sons, has warned Tata companies holding Tata Sons shares against the latter's move to turn itself into a private limited company as it will impose stake-sale restrictions.
In a letter to the boards of six listed Tata companies — Tata Steel, Tata Motors, Tata Global Beverages, Tata Power, Indian Hotels and Tata Chemicals — Cyrus Investments said the curbs will be "contrary to the interests of public shareholders". These six companies together hold an 8.8 per cent stake in Tata Sons, which is estimated to be worth at least $4.3 billion (Rs 28,000 crore).
The Tata companies will face challenges in divesting their shareholding in Tata Sons if the latter moves from a deemed public limited company to a private limited company, said Cyrus Investments in a three-page letter. Mistrys own 18.4 per cent in Tata Sons.
The letter comes three days ahead of Tata Sons' annual general meet (AGM) slated for Thursday during which its shareholders will vote on amendment to its Articles of Association (AoA) and Memorandum of Association to become a private limited company. The resolutions, if passed at the AGM, would have an "adverse and detrimental impact" on the companies holding Tata Sons shares, the letter said. The change in Tata Sons' legal structure requires 75 per cent of the company's shareholders approval.
The Tata Sons' move will also lead to "dilution" of governance standards, said Cyrus Investments.
"The provisions of AoA which are voluntarily included by Tata Sons despite its change of status to a private limited company cannot be equated with the same levels of accountability and governance norms to ensure minority protection as those which have statutorily been prescribed in the case of public limited companies."
Cyrus Investments urged the board of the Tata companies to act in the best interests of all stakeholders and be mindful that the investments in Tata Sons involved are "material in nature and size". Most of the Tata companies acquired Tata Sons' shares in a rights issue in 1995 when its main shareholders Tata Trusts were restricted from participation due to government rules. Cyrus Investments said that the directors of these listed companies had additional responsibilities owed to public shareholders and investors in their stocks.
(THE TIME OF INDIA)
