Cyrus Mistry Lacked Urgency to Resolve 'Legacy Issues': Tata Sons
As per petition, board had been asking Mistry to address continuing losses of TTSL for over 3 yrs
According to the petition, the board had been asking Cyrus Mistry to address the continuing losses of Tata Teleservices Limited (TTSL) for over three years as it was consuming the cash flows generated by other profitable companies in the Tata Group, with little hope of developing a sustainable profitable position in an increasingly competitive industry. However, as opposed to being decisive and taking a write-down or reducing the debt burden, Mistry kept optimistically holding out for a merger that might save the business, which has yet to materialise. The losses in the business, consequently, kept mounting. “This inability to be decisive to cut losses and resolve issues was a significant weakness in Cyrus Mistry’s leadership,” adds the petition.
Talking about other “legacy issues”, the petition says that all business and commercial decisions which have been taken by the operating companies like the Corus acquisition by Tata Steel and the launch of Nano Car by Tata Motors were taken by the board of directors of these operating companies which is not the legal yardstick on which efficacy and rationality of commercial decisions can be tested. It has submitted that a commercial judgment going wrong cannot be a ground for oppression or mismanagement.
The petition also puts onus on Mistry, who had led the executive management of Tata Motors for almost two years after the demise of Karl Slym, the former managing director and CEO of Tata Motors. During those two years, Tata Motors invested further in the Tata Nano project so as to develop newer variants of the Nano such as the GenX Nano. Given that the management of Tata Motors at such time also felt that the Nano project held potential and proceeded to invest in it, it was clear that the petitioners are incorrect to assert that the project is not being shut on account of emotional reasons involving Ratan Tata.
Regarding the Corus acquisition, the petition says that it involved a highly competitive bidding process, in which Tata Steel participated along with Brazilian steel company Companhia Siderúrgica Nacional (CSN). Tata Steel’s winning bid was GBP 608 pence per share, while CSN’s final bid was GBP 603 pence per share. “There is no basis to state that the acquisition of Corus was “done at a substantial premium”,” says the petition. Admittedly, the final bid price was higher than the initial offer price quoted by Tata Steel to Corus, this was merely a function of value discovery through a competitive bidding process.
A part of the acquisition cost of Corus was also funded by a rights issue by Tata Steel to existing shareholders of Tata Steel (including Tata Sons). The rights issue was fully underwritten by Tata Sons. Cyrus Mistry was on the board of directors of Tata Sons at the time when Tata Sons agreed to subscribe to shares in the rights issue and was a party to the decision.
“Neither were there any deliberations at the board meetings of Tata Sons, nor do the board minutes of Tata Steel indicate that Cyrus Mistry had objections to the decision by Tata Sons to provide funds to Tata Steel for the Corus acquisition,” says the petition. The petitioners and Cyrus Mistry were aware of this transaction and did not object to it at the time.
Tata petition says:
· Mistry’s petition is based on alleged acts of commercial mismanagement which were never questioned in the past
· Commercial judgment going wrong cannot be a ground of oppression or mismanagement
· Allegation of commercial mismanagement is time barred and also incorrect.
Reference - http://www.business-standard.com/article/companies/cyrus-mistry-lacked-urgency-to-resolve-legacy-issues-tata-sons-117011000029_1.html
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