Decades later, it's Tata Steel again that has featured in Shapoorji Pallonji's exit. While the Mistry family has highlighted the issues at Tata Steel, the Tatas have reiterated that the problem has shrunk
There are two versions on how the Shapoorji Pallonji family got a pie of Tata Sons, the holding company of the Tata Group, and a seat at Bombay House, the headquarters of the salt-to-steel conglomerate.
One version is that siblings of JRD Tata, the late Chairman, had sold their shares in Tata Sons to the Shapoorji family. This happened in the 1960s and 1970s.
The second, and more popular version - perhaps because it's more fascinating - involves more characters and took place much earlier, in the 1920s. It involves an indebted Tata Steel, which decades later, was again a critical factor in the change in the equation between the two prominent business families.
Framroze Edulji Dinshaw was a well-known personality, not just among the Parsi community, but also among the business elite of the Mumbai of the 1920s. It was not thus surprising that the Tatas approached Dinshaw, a wealthy lawyer and landlord when two of their biggest investments - Tata Steel and Tata Hydro - faced a possibly debilitating financial squeeze.
Dinshaw lent a princely sum of Rs 2 crore, which was later converted into equity of 12.5 percent in Tata Sons. After the lawyer passed away, his descendants sold the stake to Shapoorji Pallonji, in 1936. Pallonji was the grandfather of Cyrus Mistry, the former Tata Sons Chairman who was booted out of Bombay House in 2016.
The 12.5 percent stake increased to over 17 percent in the 1970s when JRD Tata's siblings sold their stakes, and then to a little over 18 percent in 1996 when Tata Sons offered a rights issue. The legend goes that JRD was not amused by the increased say of the Pallonji family in the affairs of Bombay House. Later, the two resolved their differences.
At present, the Shapoorji Pallonji family has an 18.37 percent stake in Tata Sons.
More than three-fourths of a century later, when Mistry was forced to vacate his corner office at Tata Sons, one of the reasons was the difference of opinion over Tata Steel, specifically the UK business of its European arm that led to a mountain of debt.
The acquisition that went sore
It was no secret that Ratan Tata, then the Chairman of Tata Sons, had personally overseen the acquisition of Corus, for $13 billion in 2006.
By the time Mistry replaced him in 2013, it was clear that the expensive acquisition was not turning out to be desirable. In fact, the attempt in the ensuing years was to limit the losses. And one of the ways, Mistry found out, was to sell the loss-making businesses, especially those in the UK.
Mistry set in motion the process to sell the business, in parts. While he was keen to completely get out of the UK steel industry, sources earlier told Moneycontrol, Ratan Tata didn't agree. As a result, while some of the units, including those making speciality steel, were divested, other facilities were retained.
This included the Port Talbot facility that entrepreneur Sanjeev Gupta was keen to buy. Recently, in an interview with Moneycontrol, he repeated his offer.
The European business continues to struggle, and it didn't help that a much-hoped merger with German major thyssenkrupp's steel vertical failed. And the Indian arm continues to shoulder the losses in Europe.
The company incurred a consolidated net loss of Rs 4,609 crore in the April-June quarter, even though the Indian arm reported a profit of Rs 1,193.27 crore. The total debt crossed Rs 1 lakh crore in 2019 and stood at Rs 1.04 lakh crore as on March 2020.
The question and the counter
So was Mistry right in his strategy to sell off much of the European business? While the answer is debatable, the Tatas argue, the ousted Chairman doesn't lose an opportunity to highlight the challenges in the steel business. In the SP Group's statement on September 22, Tata Steel found prominent mention:
"It is a matter of public record that several issues identified years earlier, continue to plague the group. Be it the operations of Tata Steel UK, where over the last three years alone the operational losses have increased by an additional 11,000 crore or the Group’s aviation businesses."
On the other hand, the Tatas reiterated that they have managed to shrink the problem.
Addressing the shareholders in the recent Tata Steel AGM, Chairman N Chandrasekaran pointed out the change in the company's geographical mix.
"While earlier one-third of the business was in India, and was profitable, two-thirds were international and not profitable. We have changed the mix. Now, two-thirds of the business is in India," he said.The debate will continue until the UK business stabilises. The hope now is that the tussle between the two business families - the Tatas and the Shapoorji Pallonji family - may get resolved before that.