Tata Sons Ltd said on Monday its board has replaced Cyrus Pallonji Mistry as the company’s chairman with former chief Ratan Tata, in a shocking announcement less than four years after Mistry took over as the head of India’s biggest business conglomerate by revenue.
The holding company of the salt-to-steel Tata Group didn’t give any reason for the board decision in a brief press statement but said the board has named former chief and currently chairman emeritus Ratan Tata as the interim chief.
The board has also constituted a selection committee to choose a new chairman. The committee comprises Ratan Tata, TVS Group’s Venu Srinivasan; PE firm Bain Capital’s Amit Chandra; Ronen Sen, former Indian ambassador to the US; and Kumar Bhattacharyya, Indian-origin British professor and founder of Warwick Manufacturing Group.
The panel has been mandated to complete the selection process within four months, Tata Sons said.
Mistry was named as the chief of Tata Group in November 2011 and had taken over formally as chairman of Tata Sons in December 2012 after Ratan Tata retired when he turned 75 years old.
Ratan Tata had headed the group since 1991 before paving the way for Mistry after a search process that lasted more than a year.
Mistry was the sixth chairman of the group, which was founded by Jamsetji Nusserwanji Tata in 1868 and now operates in more than 100 countries and employs over 660,000 people. The group has 29 publicly-listed Tata companies including Tata Consultancy Services, Tata Steel, Tata Motors, Tata Power and Indian Hotels. The Tata group companies posted total revenue of $103 billion in 2015-16, according to Tata Sons’ website.
Mistry's appointment itself was a bit of a surprise at the time because he doesn’t carry the Tata surname. He is the younger son of Pallonji Mistry, whose construction firm Shapoorji Pallonji & Co. is the largest shareholder of Tata Sons with a stake of about 18%. A civil engineering graduate from Imperial College London, Mistry holds a master’s degree in management from the London Business School.
Mistry’s moves, other headwinds
The conglomerate had expanded aggressively, especially outside India, under Ratan Tata through multiple acquisitions in sectors such as beverages, chemicals, steel, auto and hotels in the first decade of this century. These acquisitions included multi-billion-dollar deals for Anglo-Dutch steelmaker Corus, luxury-car makers Jaguar and Land Rover and Tetley Tea.
These deals helped the conglomerate grow quickly; it now gets nearly two-thirds of its revenue from overseas operations. But the ambitious acquisitions also piled on debt and dragged some companies such as Tata Steel into losses.
Under Cyrus Mistry, the group looked to consolidate its business and cut the debt taken on to finance the acquisitions by shedding assets. This year alone, Tata Steel has sold part of its European business, Tata Communications offloaded a stake in its data centre business as well as South African telecom operations, Indian Hotels divested a hotel in Boston, US, and Tata Chemicals sold its domestic urea business.
Indian Hotels, the firm behind Taj Hotels, also sold a 5.1% stake in Belmond Ltd after previously deciding not to pursue a takeover of the firm that ran an international chain of luxury hotels under the Orient Express banner before it was rebranded.
Some other companies have also faced headwinds. Tata Motors, which owns Jaguar and Land Rover, did not give any dividend for the first time in 15 years in 2015 and gave only a small amount this year. Tata Consultancy Services, India’s largest software services exporter and the group’s cash cow, is also facing headwinds as clients tighten spending on outsourcing services.
Tata Sons is also locked in a dispute with NTT DoCoMo Inc. The Japanese telecom operator is seeking $1.17 billion in damages for breach of the shareholders’ agreement after it tendered its entire stake in Tata Teleservices Ltd to Tata Sons. The Indian company last month moved a London court to set aside an order obtained by NTT DoCoMo for enforcement of an arbitral award that required Tata Sons to pay $1.17 billion.
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