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Cyrus Mistry says sacking illegal, warns Tata Group faces $18 bn in writedowns

26 October, 2016

Cyrus Mistry has accused the Tata Sons board of wrongfully dismissing him and warned that the diversified group faces Rs 1.18 trillion ($18 billion) in writedowns because of five unprofitable businesses he inherited.

In a strongly-worded email to the Tata Sons board, Mistry also defended his performance as the chairman of the group for a little less than four years and said he had inherited a debt-laden and loss-making conglomerate that he tried to turn around.

The email, reviewed by VCCircle, said Indian Hotels, Tata Motors’ passenger vehicle division, Tata Steel’s European operations as well as the power and telecom units were “legacy hotspots”.

Mistry, who was sacked on Monday and replaced by his predecessor Ratan Tata as an interim arrangement, said the decision of the Tata Sons board had “shocked” him and that the manner in which it was done raises serious corporate governance issues.

“To ‘replace’ your Chairman without so much as a word of explanation and without affording him an opportunity of defending himself, in a summary manner, must be unique in the annals of corporate history,” he wrote in the email on October 25 which was circulated widely to the media on Wednesday.

“Apart from the invalidity and illegality of the business that was conducted, I have to say that the Board of Directors has not covered itself with glory,” he 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. 

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%, was the sixth chairman of the group founded in 1868 and which posted total revenue of $103 billion in 2015-16.

Mistry said he was promised a “free hand” when he was appointed as the chairman but he was pushed into the position of a “lame duck chairman” and changes in the decision-making process created “alternate power centres” in Tata Group.

Mistry discussed the performance and the problems of the main group companies in detail. He highlighted Ratan Tata’s favourite Nano car project that consistently lost money but could not be shut down for “emotional reasons” and because it would have stopped the supply of Nano gliders to an electric car-making entity where Tata had a stake. He alleged that Tata forced the group to enter the aviation sector by joining hands with Air Asia and Singapore Airlines and injecting capital higher than the initial commitment.

Mistry criticised the group’s strategy under Ratan Tata to acquire foreign companies and said this had left a large debt overhang. 

Under Ratan Tata, who had headed the group since 1991, the conglomerate had expanded aggressively through multiple overseas 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.

The acquisitions also piled on debt and dragged some companies such as Tata Steel into losses. Under Mistry, the group looked to cut the debt 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.

Mistry said he couldn’t believe he was removed “on grounds of non-performance” and that under his term the group’s operating cash flow rose 31% compounded per year. Also, the group’s market value increased 14.9% a year from 2013 to 2016 and the net worth of Tata Sons jumped to Rs 42,000 crore from Rs 26,000 crore, he said.

“This has significantly strengthened our balance sheet, enhancing our ability to absorb further shocks from restructuring in the companies,” he said.

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Cyrus Mistry says sacking illegal, warns Tata Group faces $18 bn in writedowns

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