Mystery behind Mistry's exit: 5 things you should know right now

NEW DELHI: Ratan Tata took back control of the Tata Group after Cyrus Mistry was abruptly removed as chairman of the $100 billion coffee-to-steel business empire.

The move threatens to leave a vacuum in the group at a time when Mistry was raising cash, refinancing loans and selling assets after writing them down, in an attempt to tackle mounting debt. While we try to decode this abrupt news development, here's what you need to know:


What could be the possible reason for Mistry's ouster?
Reports say ouster had to do with performance issues. It is believed that Tata Sons was unhappy with Mistry's approach of shedding non-profit businesses, including the conglomerate's steel business in Europe, and concentrating only on cash cows.

The Tatas are present in about 100 businesses ranging from automobiles to retail to power plants to software. But just two of them have been consistent performers — IT services exporter Tata Consultancy Services (TCS) and Jaguar Land Rover, the marque car company it bought from Ford Motor in 2008.

Also Read: Analysts expect knee-jerk reaction to Mistry's ouster on Tata stock counters

When can they find Mistry's replacement?
The decision was taken collectively by the board of Tata Sons in the long-term interest of the company and on the recommendation for the principal shareholder of Tata Sons that is Tata Trusts, according to reports. Mistry will remain a director of the individual companies, they added.

A selection panel has been formed to find a successor in four months. The committee will include Ratan Tata, Ronen Sen, Venu Srinivasan, Amit Chandra.

Who decided it was over and out for Mistry in Tata Sons?
Sir Dorabji Tata Trust and Sir Ratan Tata Trust -- two trusts chaired by Ratan Tata -- have powers to appoint or remove a chairman with their own three-member quorum of the selection panel.

The 2 trusts hold 66% stake in Tata Sons, the holding firm of the $100-billion Tata group of companies. Mistry's family, the Shapoorji and Pallonji Group, owns 18.5% stake in Tata Sons and is the largest shareholder in the company.

What does Mistry's family say about the ouster?
Shapoorji and Pallonji Group, the majority shareholder in the Tata Group, has termed Cyrus Mistry's ouster from Tata Sons as illegal. Mistry is the son of Pallonji Mistry, who heads the group. The group says it will contest the move, adding that the decision to remove Mistry was not unanimous.
Out of the nine board members, 8 members voted. Six voted for Mistry's ouster and two abstained.

What happens to investors?
Tata group stocks are in for short-term volatility, when trading resumes on Tuesday. “It is a shocker, because Cyrus had a different way of handling things. He was consolidating the Tata businesses by selling non-crore businesses of the Tata group. He was concentrating on selling low-margin businesses and concentrating on high-margin businesses. Tatas are good as humans, but in business cycle, they are bit lavish,” said AK Prabhakar, who heads IDBI Capital. “They closed their low-margin broking arm. How the market may react, one cannot say. But we may see some knee-jerk reaction. There will be few stocks which will react negatively,” Prabhakar said.