The thumb rule in bargaining is to start the bid at half the asking price. Most Indians excel at it, but sparring partners Tata Sons and Shapoorji Pallonji Group are about to find themselves in a similar situation. On the block is SP Group’s contentious 18.4 per cent stake in Tata Sons, which it values at Rs 1.75 lakh crore.
However, the Tatas peg it at less than half at Rs 70,000-80,000 crore. Both parties are now expected to start negotiations, but the manner in which they’ll arrive at a mutually-acceptable price will be closely watched.
The stake sale is critical for both companies to reduce debt. While SP Group with a debt of about Rs 23,000 crore has been scouting for funds since last year, Tata Sons with a debt of Rs 1.96 lakh crore (all group firms) must put the matter to rest to focus on growth.
The Supreme Court’s (SC) verdict on Friday was in favour of Tata Sons on all counts (including upholding Tata Sons’ decision sacking Cyrus Mistry as its Chairman and Executive Director), the 3-judge bench led by Chief Justice S A Bobde, however, decided not to adjudicate on the issue of shares and instead suggested legal route to resolve the matter.
“The valuation of the shares of SP Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets etc., and also perhaps the funds raised by SP Group on the security/pledge of these shares. Therefore at this stage and in this Court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard,” the SC ruled.
Trouble is, Article 75 was the very provision that the SP Group had objected to, saying it ignores “constitutionally valid safeguards in company law,” with respect to minority shareholders. It mandates minority shareholders to approach the Tata Sons board with an offer and also grants the board the power of right of first refusal to either buy the stake, or get investors.
In essence, attempts to offload stake could be either long-drawn or see a deadend given that the list of investors with billions of dollars to spare is usually limited.While the verdict does bring finality to the long-drawn corporate boardroom battle, much depends on whether the sparring partners can find a middle path.