Mistry Said to Have Proposed Doubling Dividend to Tata’s Owners

(Bloomberg) -- Cyrus Mistry, the ousted chairman of India’s biggest conglomerate, had proposed to more than double the dividend holding company Tata Sons Ltd. would pay its shareholders by 2020, according to a person with direct knowledge of the matter.

In a strategy document that was presented to the board three times, Mistry had recommended boosting the payout to about 8 billion rupees ($120 million), compared with 3.23 billion rupees as of March 2016, said the person, who asked not be identified because the details are private.

The dividend proposal counters accusations that the Tata Trusts -- the majority owner of Tata Sons -- had no visibility into the company’s future cash flows and were starved of information on group units, and helps to shed light on the power struggle behind the most dramatic boardroom coup India has seen in years. Dividend income is crucial for the trusts, which fund groups fighting against malnutrition to working with the Khan Academy to improve quality of education in the world’s second-most populated nation.

“The reasons for sacking Mistry as chairman are still unclear,” said Shriram Subramanian, founder of InGovern Research Services, a proxy adviser. “Both camps are listing out their side, but the reality that triggered the abrupt removal of Mistry would be different.”

For a QuickTake Q&A about the boardroom battle at Tata Sons, click here

Mistry, 48, was replaced as Tata Sons chairman by his 78-year-old predecessor Ratan Tata at a board meeting on Oct. 24. Tata Sons said the conglomerate’s board and Trustees of the Tata Trusts were concerned about a growing “trust deficit” with Mistry, which prompted the company to remove him.

Mistry had also proposed increasing the dividend payout ratio from about 7 percent to around 20 percent by 2025, the person said. The former chairman had made presentations for the past couple of years on cash flows to Tata Sons based on different assumptions of potential growth, the person said. Tata Sons made a 6.5 billion-rupee payout last year after Tata Consultancy Services Ltd., the group’s biggest unit by market value, handed out a special dividend, the person said.

A spokesman at the holding company said the information provided doesn’t constitute a complete picture.

The strategy document, which was presented in September, wasn’t found suitable as it was heavily dependent on Tata Consultancy and didn’t have adequate return on capital, according to people close to Tata Sons who asked not to be identified because the matter is private.

To read about the impact of the dispute on Tata group companies, click here

In his strategy presentation, Mistry included problems at five unprofitable group units, the person said. In an e-mail sent to Tata Sons directors a day after he was fired, Mistry described Tata Steel Ltd.’s European operations, Tata Teleservices Ltd., Tata Motors Ltd.’s local business, Indian Hotels Co. and Tata Power Ltd. as “legacy hotspots.”

In the e-mail, Mistry also said that the tea-to-software giant may face 1.18 trillion rupees in writedowns because of the five loss-making businesses. Cash at the conglomerate increased 28 percent to 1 trillion rupees as of March from the same period in 2014, while gross debt rose 15 percent to about 2.5 trillion rupees, the person said, citing the strategy document. All the numbers were disclosed to the Tata Sons board earlier, the person said.

For Tata’s challenge to find a successor for Mistry, click here

The document gave details of ways to fix the problems in the companies and the key risks to the group, the person said. Mistry proposed to merge some of the companies and to consider exiting those that were not performing, the person said. The group also felt that the commodity super cycle was over and was keeping a close eye on the developments in China, the person said.

On allegations that Tata Sons was not kept informed on major decisions by operating companies, such as Tata Power’s acquisition of a 1.1 gigawatts solar and wind portfolio from Welspun Renewable Energy Pvt., the person said an e-mail was sent to Tata Sons’ board on May 31. A trustee of one of the trusts also wanted to change the structure of the deal, the person said.

For a Gadfly piece on the Tata dispute, click here

Tata Power did send the e-mail but it wasn’t seeking approval for the transaction, the people close to Tata Sons said. The trustee did suggest changes to the structure to help the company get more for the deal, the people said. Tata Power in March made a presentation to the Tata Sons’ board without making any reference to acquisition plans even though negotiations with Welspun had started in November, the people said.

There is no need to disclose certain information about operating aspects to Tata Trusts, said InGovern’s Subramanian. Tata Sons will have access to all information about its companies like any other shareholder, and it is immature for Tata Group to oust a chairman citing the information flow, he said.

Mistry, who had been chairman for almost four years, said in the Oct. 25 e-mail to the board that he hadn’t been given the opportunity to defend himself. The former chairman, who planned to discuss corporate governance at the meeting, was told about his fate minutes before the board meeting, the person said. Mistry was requested to step down before the meeting and was aware of the dissatisfaction against him, people close to Tata Sons said.