‘High valuation will be a major hurdle in SP Group’s bid to sell stake in Tata Sons’

Our Bureau Mumbai | Updated on September 23, 2020

A file photo of Ratan Tata (left) with Cyrus Mistry   -  PTI

Lack of voting rights another drawback, say analysts

Sharpoonji Pallonji Group may find it difficult to get buyers for its 18.37 per cent stake in Tata Sons due to its high valuation of about ₹1.78-lakh crore. The lack of voting rights is also another drawback, according to analysts.

In the expanded base of issued capital, Mistry family does not have voting rights for the entire stake it holds. The Mistry family has only voting rights for less than 4 per cent of the entire stake.

On Tuesday, SP Group said it's time to exit from Tata Sons after a relationship that spanned 70 years turned sour in the last few years. The Supreme Court also restrained the group from pledging or selling its shares in Tata Sons till the next date of hearing, October 28, and had asked them to maintain status quo.

SP Group was in talks with various investors to raise ₹11,000 crore, and had even signed a deal Canadian investor for ₹3,750 crore. The Mistry family alleged that Tata Sons has amplified its institutional efforts to suppress and inflict irreparable harm on the SP Group, in the midst of a global crisis triggered by the Covid pandemic.

Analysts said that since Tata Sons has the first right of refusal on any share sale by SP Group, it may not be easy for the Mistry family to exit the group.

“The first thing to agree would be on valuation. Mistry family has already pegged it at around ₹2 crore a share. It would be difficult for any one entity to buy the entire 18 per cent stake,” said a source close to the warring sides.

SP Group could approach private equity companies to parcel out small stakes to multiple entities but even there things could get tough as the shares are at the holding company level of a private limited company. Many private equity firms have preference for investing in operational companies instead of holding companies.

Published on September 23, 2020

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