With Tata Consultancy Services announcing its Extraordinary General Meeting to oust Cyrus Mistry as Director, other Tata group companies including Tata Motors and Tata Steel are expected to spell out their respective strategies this week.
Tata Sons has already asked these group companies to call for an EGM to seek shareholders’ approval to force Mistry out of the boardroom.
According to analysts, the Tatas will find it easier to get what they want in TCS since they holds 73 per cent stake. In other group companies, however, the outcome will depend on how financial institutions vote as Tata Sons hold only between 30- 40 per cent stake.
Mistry is director in seven listed companies of the Tata Group. Tata Sons’ shareholding is lowest in Tata Chemicals and highest in TCS.
All the companies have fairly large shareholding of retail investors, between 20-30 per cent with the exception of TCS where promoters own 73 per cent and Tata Power where holding of retail investors is 16.40 per cent.
“The key to passing or defeating a resolution rests in the unity index of non-promoter shareholders. Unless all non-promoter shareholders unite and vote against the resolution, it is unlikely to be defeated. The reason for this lies in the voting pattern observed relating to retail investors, whose participation in voting is insignificant,” said a note from corporate governance advisory firm Stakeholders Empowerment Services (SES).
Both sides, while preparing a strategy for the EGMs, are holding their cards close to their chests.
“The fact that TCS was the first to announce the date for the EGM shows that the Tatas don’t want to take any chances. They are going with the safest bet first and then hope that it will rub off on the shareholders of the other group entities,” said an industry source aligned with the Mistry camp, adding that the ousted chairman will perhaps seek shareholders’ support in questioning some of the past decisions made by Ratan Tata.
Those who back the Tatas said that Mistry will find it tough in garnering the support needed to stay on the boards of the companies.
According to an analysis by SES, different scenarios are possible, depending on how the various stakeholders vote.
Where non-promoter investor participation remains same and all non-promoters vote against the resolution, the Tatas can face defeat in Tata Steel, Tata Motors, Tata Power and Tata Chemicals, unless retail investor vote en masse in favour of the resolution.
If LIC and other insurance companies vote in favour of the resolution, only in Tata Motors do the Tatas face defeat if other investors step up against the resolution.
If LIC abstains, and if all shareholders oppose the resolution, it may be defeated in all companies except TCS.
Even if LIC votes in favour, the resolution can still be defeated in Tata Motors, Tata Chem and Tata Global, while in Tata Steel and IHCL it may be touch and go.
If LIC votes against in all companies, the resolution will be defeated across the board except in TCS.
“The key for victory for either side lies in participation of investors and on whose side institutions vote including LIC,” SES said in a note.