Tata shake-up may distract group from restructuring efforts

Tue Oct 25, 2016 10:50am EDT
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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 (TISC.NS: Quote) 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: Quote) 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.   Continued...

Tata Sons Chairman Ratan Tata arrives in his office after attending a meeting at the company's head office in Mumbai, India, October 25, 2016. REUTERS/Danish Siddiqui