After days of shadow boxing through responses to selective issues, Tata Sons Ltd. on Thursday issued a nine-page statement justifying its decision to sack Cyrus Mistry from the position of chairman. According to the statement, Tata Sons felt that Mistry had underperformed in the role of chairman and was using the excuse of legacy issues to justify his performance.
Tata Sons says that the group's performance should be viewed after removing the contribution of Tata Consultancy Services Ltd. (TCS) and Jaguar Land Rover (JLR), since Mistry had little involvement in the performance of these companies.
Dividends received from all the other 40 companies (many non-dividend paying)has continuously declined from Rs1,000 crores in 2012-13 to Rs 780 crores in 2015-16 but the latter figure includes additional interim dividend of Rs 100 crores whichwould have been normally received in 2016-17 (due to budgetary changes). This surely reflects the decline in the total profits of those operating companies fromwhich dividends are paid, during the last four years.Tata Sons Statement
The group went on to allege that Mistry is using legacy issues as an excuse to justify his lack of performance. In a letter written to the board of Tata Sons after his removal, Mistry had highlighted the legacy issues, such as high group debt, that he had to deal with during his tenure.
Tata Sons refutes this and says that Mistry was well aware of these issues when he took over.
After four years of full-time involvement and executive authority, we continue to betold how these ‘legacy' problem areas are a major drag on Mr. Mistry's otherwise goodperformance. How many more years would we be told this same story?Tata Sons Statement
Commenting on the group's finances, Tata Sons, in its letter, says that group debt has only risen during Mistry's tenure. In addition, planned divestments have not taken place.
Group indebtedness hasincreased by Rs 69,877 crore to Rs 225,740 crore over the last four years. Despite hugeinvestments by companies, the returns are not visible in increased profits, though, in allfairness, some major growth projects like the new steel plant at Kalinganagar will showresults only in coming years.Tata Sons Statement
Tata Sons has questioned Mistry's claim that the group may require steep write-offs of upto $18 billion. It has been widely reported that the statement about potential write-downs has been largely responsible for the loss in the total market value of these five or six companies of an amount of over Rs 25,000 crores, said Tata Sons. The group went on to add that the onus for this loss in shareholder value should lie with Mistry rather than the companies.
Concerns At Tata Steel
Tata Sons raised concerns about the manner in which Tata Steel's Europe business is being handled. Mistry has been attempting to divest assets in U.K. and Europe to stop the losses being incurred by the group on account of weakness in those businesses. While Mistry has blamed the poor performance of those assets on weakness in the global economy and the commodity cycle, Tata Sons refutes this.
Also Read: Tata Sons Defends Move To Sack Cyrus Mistry: Full Statement
Support From Indian Hotels' Independent Directors
In its letter, Tata Sons has questioned the manner in which Indian Hotels Company Ltd.'s independent directors came out in support of Mistry. Following a board meeting of the company last week, the independent directors issued a statement saying they have full faith in Mistry.
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Performance Of Tata Motors
Tata Sons also expressed concern on the domestic performance of Tata Motors Ltd.'s business.
According to the letter, there has been a “perilous drop” in market share in both passenger cars and commercial vehicle areas over the past three years. This, however, is being masked by reporting consolidated results, said Tata Sons.
Mistry, on his part, has questioned various decisions taken at Tata Motors during Ratan Tata's tenure. In particularly, he claimed that there was no roadmap to the profitability of the Nano project. The project is being kept alive due to emotional reasons and because it was dear to Ratan Tata, Mistry had alleged.
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