Tata fight turns no-holds-barred

Two days after his removal as Tata Group chairman, Cyrus Mistry has hit back.

Contesting allegations of poor management skills and corporate governance standards, the former Tata group chairman launched a scathing attack on his predecessor and mentor Ratan Tata, alleging several deep strategic and management flaws of the group that he inherited.

The flaws, he said, cumulatively raised the spectre of not less than Rs 1.18 lakh crore impairment in several “legacy hotspots” such as Indian Hotels, Tata Motors passenger vehicles, Tata Steel Europe, Tata Power Mundra and Tata Teleservices.

In a long e-mail addressed to all Tata Sons and Tata Trust directors, a copy of which is available with DNA Money, Mistry criticised Ratan Tata blaming him for undue interference, taking decision driven by emotions rather than any objective business sense leading to unprofitable questionable decisions.

Cyrus claimed continued interference by Ratan Tata forcing him to clear deals like JVs with Air Asia and Singapore Airlines; decision driven by emotion, Cyrus alleged, forced the group to continue with the heavily bleeding Nano and continue investing in two airlines ventures.

The trouble for him began as soon as he assumed charges, Cyrus alleges in the mail.

“I was assured I would be given a free hand. After my appointment, the Articles of Association were modified changing the rules of engagement between the Trust, board of Tata Sons, the chairman and the operating companies. Inappropriate interpretations indeed followed and it severely constrained the ability of the group to engineer the necessary turnaround,” Cyrus said adding that he was a lame duck and his hands were tied.

Giving specific instances of “interference”, Cyrus alleged that Tata forced him to accept deals with the two foreign airlines.

Conceptualising Nano and continuing to make it despite a flawed business model was another decision guided by Ratan Tata’s emotion, Cyrus claimed.

“As there was no line of sight to profitability for the Nano, any turnaround strategy for the company requires to shut it down. Emotional reasons alone have kept us away from this crucial decision.”

Cyrus also pointed out issues across various Tata group companies of mismanagement, debt overhang from acquisitions, threat of impairment in poorly managed businesses, loss in monetisation and faulty lease agreements in case of Indian Hotels, inappropriateness of deal with Docomo, flawed strategy for Tata Power Mundra Project, lax credit assessment by Tata Motors in a bid to shore up sales and an instance of fraud at AirAsia which was initially ignored by the management leading to resignation of an independent director.

Like Nano, the Tatas also need to exit its telecom business but that might come at a huge cost, he said.

“If we were to exit the business through fire sale or shut down, the cost would be $4-5 billion. This is in addition to any payout to DoCoMo, of at least $1 billion plus.”

Tata Power’s Mundra project is another dead horse, which the group is carrying.

“Given that Mundra constitute Rs 18,000 crore of capital employed (40% of the company) this substantially depresses the return on capital for Tata Power as well as carries the risk of considerable future impairment,” Cyrus said.

Flagging the legacy Hotspots, Cyrus said: “A realistic assessment of the fair value these businesses could potentially result in a write-down over time of about Rs 118000 crores.”

Defending own decisions, Cyrus claimed he had to take tough decisions taken to overcome such challenges. He also pointed out his other achievements like getting rid of several hanger-ons and completing the Kalinganagar steel project efficiently.

“I had to make many tough decisions with sensitive care to the group’s reputation as well as panic amidst internal and external stakeholders,” he said talking of some of the exits in fertiliser, UK steel operations and some smaller companies.