BUSINESS

The Tata-Mistry Feud Is Just The Latest In The Long History Of India's Corporate Wars

Rivalries and feuds are part and parcel of the idea of doing business.

29/10/2016 1:49 PM IST | Updated 29/10/2016 4:17 PM IST
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File photo of Ratan Tata (L) and Cyrus Mistry.

The Ratan Tata-Cyrus Mistry feud over the latter's forced exit from the chairmanship of Tata Sons is neither unique nor unprecedented. What is unusual is that the Tatas and Mistrys have, over the longer term, been more allies than rivals. Hence the greater bitterness over the parting. (Pallonji Mistry, an Irish citizen and Cyrus's father, was a former chairman of Tata-owned ACC, now part of the Holcim Group).

Rivalries and feuds are part and parcel of the idea of doing business. It comes with the territory, for business is about creating, controlling and distributing wealth, about competition, about winning and losing. It is a high-stakes game, and it can often be a zero-sum game, where someone's gain can come only at another's cost. It is thus difficult to conceive of business without expecting aggression, anger and bitterness at some point, between friends or foes.

Businessmen (and sometimes women) fall apart over three or four basic points of contention: entrepreneurial or personal ego, conflicts over ownership or division of assets, and conflicts over markets and resources, especially if the latter are in short supply for any reason (regulation, limited natural availability, etc). The reasons for partners to fall apart can be any one of them, or a mixture of all or some of these factors combined.

Businessmen (and sometimes women) fall apart over three or four basic points of contention: entrepreneurial or personal ego, conflicts over ownership or division of assets, and conflicts over markets and resources.

In the Tata-Mistry case, at least two factors have forced the Tatas and Mistrys apart: ego and assets. When Cyrus Mistry took over as Chairman of Tata Sons, his was a unique case where a majority shareholder (Tatas) appointed a member of the single-largest minority shareholder (the Mistry group, which owns 18.4 percent in Tata Sons) to run the whole Tata group.

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It was sheer folly, for three simple reasons: One, Mistry was not a hired hand, but a billionaire and promoter in his own right. Ultimately he would not have been willing to kowtow to Ratan Tata. There could thus have been a subtle ego tussle, and Cyrus Mistry's letter, which accuses the Tatas of corporate misgovernance and overpaying for some acquisitions, is a sign of this ego tussle. Essentially, Mistry's letter was about saying "Look, you ran many businesses into trouble, and I am trying to rescue them."

Two, as a large shareholder, even if the Tata Trusts owned two-thirds of Tata Sons, Mistry's interests were different from that of a professional CEO. He was as much owner of Tata Sons (albeit a minority owner) as Ratan Tata, who chaired the trusts that owned a majority stake in the company.

Mistry was not a hired hand, but a billionaire and promoter in his own right. Ultimately he would not have been willing to kowtow to Ratan Tata.

And three, Tata Sons' assets include 74 percent ownership of Tata Consultancy Services (TCS), which generates 95 percent of its dividend flows. At 18.4 percent, the Mistrys' indirect ownership of this crown jewel can be valued at over $10 billion. This is why getting the Mistrys out of Tata Sons is not going to be easy. It will take tons of cash, something the Tatas won't find easy to generate in this economic situation.

Nor was this the only owner-CEO spat in the Tatas. In the 1990s, when Ratan Tata was anointed heir to JRD Tata, Ratan had to use his clout at the level of the Tata Trusts to oust the satraps who ruled the group's flagship companies: Russi Mody from Tata Steel, Darbari Seth at Tata Chemicals, Ajit Kerkar at Indian Hotels, and AH Tobaccowala at Voltas.

So ownership and control tensions are not unique to the Tata-Mistry affair or even to the normally non-combative Tatas. In 2004-06, when AT&T decided to exit Idea Cellular, the shares were sold equally to both Birla and Tata. But this led to a fight between the Tatas and the Birlas, a behind-the-scenes battle fought over the price for Tatas' exit from Idea, since extant telecom rules did not allow the Tatas to own two telecom companies in the same circle (the Tatas got into CDMA-based telecom services through Tata Indicom). The Birlas tried to edge out the Tatas by pressuring them on the regulatory front, but in the end the Tatas got out at a decent price. The episode cooled the relationship between Ratan Tata and Kumar Birla, who were earlier on chummier terms. Business interest sometimes trumps personal ties.

Telecom has been the scene for several subterranean corporate battles.

Telecom has been the scene for several subterranean corporate battles, starting from the scrimmage in the 1990s when the field was opened up, and turning bitter in the late 1990s, when the Ambanis wanted to enter through the backdoor – a technology called wireless-in-local loop, that effectively erased the distinction between a wireline company and a wireless one.

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Mukesh Ambani, Chairperson, Reliance Industries Ltd.

This battle pitted the Ambanis against the Mittals of Airtel and almost every other telecom company of the early 2000s, till Arun Shourie as Communications Minister ended the lobbying war and shifted the terrain to the market. The fight continued whenever rogue ministers took the charge of the ministry, as was the case in UPA-1 and UPA-2, with Dayanidhi Maran and A Rajan taking turns at dubious policy-making that led to covert corporate wars. The Tatas used Niira Radia's services to ensure that they did not lose this war to rivals, and we know where that ended.

The Birlas themselves were involved in two battles, including one in the 1980s, when the Modi Group (which later split into several sub-groups) got a licence to make viscose staple fibre (VSF) – a semi-synthetic fibre in which the Aditya Birla Group had a near monopoly. The Birlas won that battle even though the Modi Group had tied up with Courtaulds for technology.

Perhaps the feud of feuds in the corporate world was the much-celebrated battle between Nusli Wadia and Dhirubhai Ambani in the 1980s and 1990s, and we know who won that one.

The Modi project never got off the ground, no doubt due to the lobbying efforts of the Birlas. But in the Noughties, the Birlas lost to the Lodhas (not the real estate Lodhas of Mumbai, but the RS Lodha family of Kolkata), when they decided to challenge the will of Priyamvada Birla, wife of MP Birla, leaving Birla Corporation (a cement company) to Lodha. After a lot of public acrimony, and despite the gang-up of various Birla groups against Lodha, the Birlas finally lost the cement company case in courts.

Perhaps the feud of feuds in the corporate world was the much-celebrated battle between Nusli Wadia and Dhirubhai Ambani in the 1980s and 1990s, and we know who won that one. This fight had ego elements - Dhirubhai was a mere trader when the Wadias ruled the roost in textiles; the Wadias tended to look down on Ambani as a Johnny-come-lately - and control of future markets. The core fight was about licences for two ingredients for making polyester: one was called DMT (dimethyl-terephthalate), and the other was PTA (purified terephthalic acid).

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Wadia had a licence for one, and Ambani for the other, and the latter was clearly the better technology. The fight happened at the policy level (over import and local duties leviable on the two intermediates) and at the licensing permission level. At one point, the feud had generated such bad blood that even criminal intimidation and death threats were alleged to have been made. The intensity of the feud can be gauged from a reference Dhirubhai Ambani, in one of the two times this writer met him, made to Bombay Dyeing (Wadia's flagship company). I had asked about his rivalry with Bombay Dyeing, and Ambani referred to the company as "Bombay Dead."

The Wadias, despite losing the big one to Ambani, won another battle where they sought to buy Britannia from RJR Nabisco.

Ambani was to be involved in several other fights with other rivals, some of which he lost. In the 1980s, the late Manu Chhabria (one of the original takeover tycoons) bought a stake in Larsen & Toubro. To fend him off, the management asked Ambani to become white knight, but the defender became the predator once Chhabria was seen off. As a major builder of petroleum and petrochemical plants, L&T was an important backward integration for the Ambanis.

But at some point, when Ambani was out of favour with the government of the day, the financial institutions installed former SBI Chairman DN Ghosh as Chairman of L&T, and the Ambanis ended up having to sell their stake to the Aditya Birla Group. It was the Birlas who won this war partially, when they used their ownership of L&T shares to get the company to sell its cement business to them (it is now called Ultratech). This war had several players and multiple feuds, and the victor was an unexpected one.

The Wadias, despite losing the big one to Ambani, won another battle where they sought to buy Britannia from RJR Nabisco. But Nabisco changed its mind and brought in Wadia's pal Rajan Pillai as Britannia as boss of Britannia – souring one friendship. But at a later stage, Pillai bought over Britannia with the help of French company Danone, but this relationship also fell apart over allegations of fraud by Pillai, and with Danone turning to Wadia. This is how Britannia fell into Wadia's lap. That Danone then went its own way later is another story, but Wadia now owns Britannia.

Liquor baron Vijay Mallya fought with Manu Chhabria for the ownership of foreign-owned Shaw Wallace, and lost.

Liquor baron Vijay Mallya fought with Manu Chhabria for the ownership of foreign-owned Shaw Wallace, and lost. Mallya recently lost control of two more booze companies, United Breweries and United Spirits, to Heineken and Diageo, as a result of his own follies in pledging his highly-valued shares to raise money to run Kingfisher Airlines, a cash-guzzling vanity business. This is like pledging your diamonds to buy charcoal, but that is what Mallya did.

One of the oldest corporate battles was seen in the early 1980s, when Swraj Paul, a lifetime British Peer, tried to take over Escorts and DCM by buying shares in the open market. But, despite the Indira Gandhi government's tentative moves to liberalise the economy, it was too early to succeed, as the government simply had too many levers in its hands to fend off raiders. And Paul had to return home empty-handed.

The Bajajs and Firodias fought over the latter's control of Bajaj Tempo (now called Force Motors); and the Bajajs themselves fought over the separation of Shishir Bajaj from the family, when the latter demanded full ownership of Bajaj Hindusthan (a sugar company) and Bajaj Corp (a personal care products company). The separation led to the airing of family grouses in public, but in the end the rest of the Bajajs allowed Shishir to part company.

When it comes to family feuds caused by ownership troubles and division of assets among siblings, you can't throw a brick at India Inc without hitting some business family or the other that has been in the midst of such warfare. From the Ambanis to the Bajajs, Birlas, Piramals, Bangurs, Khataus, Singhanias and several other groups, few business families have had the foresight to divide assets without a messy and public fight.

We are, after all, inheritors of the Mahabharata and Kurukshetra tradition. Feuding comes naturally to us.

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