Just days ahead of the Supreme Court hearing on the Tata-Mistry case, slated for 3rd November, 2020, the Shapoorji Pallonji Group made public its proposal for a formal separation on 29th October, 2020, which the Tatas are mostly unlikely to accept. As per this proposal, the SP Group, which owns 18.4% stake in Tata Sons filed a scheme of separation in Supreme Court proposing to swap its entire holding in the group holding company for equivalent shares in listed entities of Tata group and along with a pro-rata share of Tata brand value (adjusted for net debt against) payable by cash or listed securities. For unlisted companies of Tata group, the SP group has sought independent valuation also payable in cash and or in listed securities.

The Cyrus Mistry owned SP Group has included a helpful example to illustrate how this would work, calculating their share in the crown jewel of the Tata Group at 13.22% shareholding of Rs 1,35,000 crore at current market capitalization.

The SP Group calls this a ‘fair and equitable solution to all stakeholder’ and claims the largely non-cash settlement would ease pressure on Tatas to raise large amounts of debt.

It is unlikely that the Tata’s will see the SP Group’s number on its valuation for 18.37% stake at Rs 1,75,000 crores as a ‘fair proposal’. The Tatas have been tight-lipped so far and issued a terse statement several days after the SP Group first announced its intent to separate merely saying that all responses would be made in court.

On 22 September, the Mistry family, which is fighting several court cases with Tata Group, said that a separation from the Tata Group is necessary due to the potential impact this continuing litigation could have on livelihoods and the economy. For this, the family said that it was crucial that an early resolution be reached to arrive at a fair and equitable solution reflecting the value of the underlying tangible and intangible assets. The statement followed a long, protracted legal battle between the two groups, which started in December 2016, after Cyrus Mistry was removed from the post of chairman of Tata Sons in October of that year.

In December 2019, the National Company Law Appellate Tribunal (NCLAT) ruled in the favour of Mistry firms. The final straw came on 5 September, Tatas objected to SP group’s move to pledge its Tata Sons stake with lenders to meet its debt obligations. According to analysts a complete buyout of Mistry family’s stake would require Tata Sons to make an upfront cash payment to the tune of ₹1,75,000, which in turn adds a significant debt burden on Tata group which continues to headwinds in several of its businesses.

While the SP group’s structure reduces the cash burden for Tata Sons, swapping the shares with those of the listed companies only reverses what Tata Sons has been trying to accomplish over the past 24 months – to shore up equity and reduce cross-holdings in the operating subsidiaries. But having decided to part ways, it is up to both groups to work together to carve out a sensible exit in the interest of all stakeholders, as per expert industry analysts.