Tata shake-up may distract group from restructuring efforts

October 25, 2016 2:51 AM EDT

Tata Group Chairman Cyrus Mistry speaks to shareholders during the Tata Consultancy Services (TCS) annual general meeting in Mumbai, India June 28, 2013. REUTERS/Vivek Prakash/File Photo


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By Aditi Shah and Promit Mukherjee

NEW DELHI/MUMBAI (Reuters) - The surprise removal of Tata Sons' chairman Cyrus Mistry and his advisory team, and the temporary return of family patriarch Ratan Tata, may distract the salt-to-software conglomerate from its efforts to trim debt and reshape some of its businesses.

The boardroom coup, announced late on Monday, sent shares in some of Tata's listed companies lower on Tuesday, although the reinstatement of the widely respected Ratan Tata as interim chairman helped ease investor concerns.

"When Mistry was there some actions were being taken at a group level which would have helped reduce the company's cash drain activities," said Daljeet Singh Kohli, research head at broker IndiaNivesh. "There was hope that rational, rather than more emotional decisions would prevail."

Uncertainty at Tata may stall some ongoing initiatives, such as the search for a partner for Tata Steel's struggling UK assets, some analysts say.

Under Mistry, Tata "have taken significant steps towards deleveraging and better utilization of capital," Citigroup said in a client note on Tuesday, adding his absence may impact the group's future strategy and delay the "process of deleveraging."

Media reports following Mistry's ouster suggest the influential Tata family, which owns a majority stake in Tata Sons through a series of trusts, was unhappy with some of his decisions as chairman.

Both Ratan Tata and the Tata Trust were kept in the dark on a number of sensitive issues, said a person with knowledge of the matter, and attempts to sell Tata Steel's UK business and an aggressive stand against Japan's NTT DoCoMo <9437.T> in a teleservices dispute proved "the last straw".

"The way Mistry was displaced was quite out of character for the Tatas," the person said. Indeed, the ouster risks escalating into a public spat, with local media reporting on court filings on Tuesday. Any legal dispute could pit Mistry's Pallonji family, one of the largest shareholders in Tata Sons, against the Tatas - and prove a distraction for a successor.

Potential full-time replacements touted in media reports include PepsiCo Inc (NYSE: PEP) CEO Indra Nooyi; N Chandrasekaran, CEO of Tata Consultancy Services (TCS) (NYSE: TCS); former Vodafone (NASDAQ: VOD) boss Arun Sarin; family scion Noel Tata; and Ishaat Hussain and B Muthuraman from Tata Group.

Tata Sons said in a statement late on Tuesday that it added TCS' Chandrasekaran and Jaguar Land Rover CEO Ralf Speth to its board.

BUSINESS FOCUS

Ratan Tata on Tuesday urged the heads of Tata Group companies to focus on their businesses and shareholder returns, and not be distracted by the board changes.

Those group companies own a range of well-known brands, including Jaguar Land Rover, Tetley tea, Titan and the Taj Group of hotels.

"The companies must focus on their market position vis-à-vis competition, and not compare themselves to their own past," Tata said, according to a company statement.

"At a business level, life doesn't change for us due to this management re-jig," said a senior banker and frequent investor in Tata Group's bonds. "What we need to see is what kind of strategy they will adopt now to revive their weak companies."

SWIFT REMOVAL

Mistry's dismissal as chairman - he remains a board member - stunned even Tata insiders and senior executives, people in the company said.

"It came as a surprise to us; nobody seemed to know anything about it," said one senior Tata Group official, adding they were informed through a memo and told the move was "unlikely to have much impact on individual companies."

Tata has disbanded the group executive council - a core advisory team - set up by Mistry, who was trying to shake up the $100 billion company through changes to its management structure and the introduction of new faces at senior levels.

In a sign of the near-150-year-old conglomerate's heft, Prime Minister Narendra Modi was told about the leadership change in a personal letter, according to government sources.

STOCKS REACT

Shares in Tata Steel fell 2.5 percent, with Tata Power down 1.5 percent, TCS 1.2 percent and Tata Motors 1.1 percent. The broad Mumbai market <.NSEI> closed down 0.2 percent.

Arun Kejriwal of Kris Research in Mumbai said this was a "knee-jerk reaction as sentiment takes a hit and an air of uncertainty prevails."

"Communication with investors and analysts will play a key role in restoring faith and normalcy."

(Reporting by Aditi Shah and Promit Mukherjee, with additional reporting by Delhi and Mumbai bureaus; Writing by Euan Rocha; Editing by Ian Geoghegan)



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