It’s another key link in the Tata Group’s strategy to gradually move out of non-core businesses. Last week, the group formally announced that part of its 14.82 per cent stake in Forbes Gokak will be sold to existing shareholder Pallonji Mistry. To be exact, 6.77 per cent at Rs 80 a share. The residual 8.05 per cent Tata group stake is to be warehoused with investment bank, JM Morgan Stanley, which also acted as the merchant banker to the transaction.

Further, Tata Investment Corporation also subsequently signed an agreement with Mr Mistry’s Sterling Investment Corporation to divest the residual stake also in Forbes Gokak before December 31 at Rs 80 per share on a spot-delivery basis.

Clearly, the just concluded transaction is one more in a series of high profile exits that the Tata group has done from non-core areas following a restructuring report submitted in the mid-90s by management consultants, McKinsey & Company. A chaebol of sorts, the Tata group’s business foot-print in the past spanned unrelated commercial interests. In a liberalising and competitive scenario, shedding layers of adipose was critical.

And flab has been shed. In the run up to the partial stake sale in Forbes Gokak to Mr Mistry, other notable exits in recent times have been the sale of Merind to Wockhardt, Lakme to Hindustan Lever Ltd, 14.45 per cent in ACC to Gujarat Ambuja, Tisco’s cement division to Lafarge, and Tata Chemicals detergents’ division to Jyoti Labs. There is also possibly the impending sale of Tata Chemical’s cement business. In effect, the Forbes Gokak stake sale is a linear progression in the implementation of Mckinsey’s suggestions at specific Tata group company level.

The preferred suitor
Historically, as a company, Forbes Gokak is actually even older than the Tata group. Forbes Gokak’s history dates back to 1764: Forbes & Company. In 1903, it merged with Ritchie Stuart & Company. In 1957, the Tata group came in when a bulk of its stake was divested.

In 1992, Forbes Campbell & Company was amalgamated with Gokak Patel Volkart, and was rechristened as Forbes Gokak. Forbes Gokak has eleven subsidiaries and varied interests. They include textiles, engineering, office equipment, a joint venture with AB Electrolux (Eureka Forbes) and shipping. By itself, all this is unwieldy to say the least.

For the Tata group, Forbes Gokak’s main interest-textiles, which contributed Rs 273 crore of its total turnover of Rs 366 crore in 2000-2001 - is no more a core area. The company has also been doing badly. Net-profit for 2000-2001 stood at Rs 9.03 crore, down from the Rs 40.6 crore in the preceding fiscal.

At the group level, Forbes Gokak does not contribute to the much-hyped Tata Brand Equity Scheme that envisages adherence to the Tata group’s codified motto for a fee. In many ways, the writing was possibly there on the wall: that the Tata group’s interest in Forbes Gokak was to be a finite one. This is despite the continued presence of several Tata Sons board-members: Freddie Mehta, the company’s chairman; Tata Sons’ 
vice-chairman NA Soonawala; and its director, Jimmy Sethna. It is believed that Mr Mehta may continue as chairman of Forbes Gokak for sometime - at least until end-December 2001 - by when the Tata group proposes to sell all its holding to Mr Mistry.

The Tata group and Mr Mistry, Bombay House insiders say, have been in talks with one another for some time now over Forbes Gokak. But why Mr Mistry? While Mr Mistry was not available for comment - a recluse as far as the fourth estate is concerned - it makes sense for him to acquire the stake in Forbes Gokak.

He could be seen at a later stage - as given to understand by top level sources - merging it with his beleaguered South India Viscose (SIV). This company has also not been faring well. For the fiscal-ended 2001, SIV posted a net-loss of Rs 95 crore on a turnover of Rs 207.38 crore.

However, a leaner Forbes Gokak and a down-the-line merger with SIV will give rise to synergies. Again, the impending buy-out by Forbes Gokak of AB Electrolux’s 40 per cent stake in Eureka Forbes Ltd, must be seen in this context. While for AB Electrolux, the move is part of its worldwide strategy to get out of direct marketing, it presents Forbes Gokak - read Mr Mistry - to emerge as a major standalone player in the vacuum cleaners and water purifiers business.

Again, Mr Mistry, despite being the biggest stake holder in Tata Sons with nearly 22 per cent as of now, has never claimed a bigger say in the running of the group. Close Tata group watchers point out an irony in this: the Tatas all along managed companies with low stakes, but Mr Mistry never ever did that at the Tata Sons level despite his substantial holding. It is believed that this relationship and power equations did play their part in Mr Mistry emerging the preferred suitor for Forbes Gokak.

Fair deal
Mr Mistry, on his part has been very fair to the shareholders of Forbes Gokak. He voluntarily chose to make an open offer for Forbes Gokak at Rs 80 a share: it was Rs 47 or so at the time of the offer. The deal itself is not complicated. The entire Tata group stake in Forbes Gokak held by Tata Sons, Ewart Investments, Bambino Investments and partly of Tata Investment Corporation has been sold to Sterling Investment of Mr Mistry at Rs 80 a share.

The above reflects changes only at the promoter-level. Mr Mistry controls over 25 per cent in Forbes Gokak even now on a cumulative basis as two 85 per cent subsidiaries of the company- Warrior Holdings and Forbes Campbell Holdings - hold 11 per cent in turn. Post the 20 per cent open-offer that has been made, the cumulative stake of Mr Mistry will be at over 55 per cent: given that the Tata group and Mr Mistry have also inked a deal, which will let the latter acquire the residual Tata stake in Forbes Gokak by end-December 2001.

However, the effective perk up in Mr Mistry’s direct stake is still only 14.88 per cent. While the Tata group will not participate in the said open offer, it is pertinent to note that Mr Mistry is making one despite the fact that his direct - not cumulative - holding in the company has not crossed 15 per cent, which would have triggered the Securities and Exchange Board of India’s open-offer code. Contrast this with what happened in the case of ACC-Gujarat Ambuja. Here’s more: Mr Mistry is making an open offer to increase his stake as a shareholder in a company.

At the end of the day, this is one disinvestment deal from the Tata stable that has gone to Mr Mistry. Sometime back, there were reports - eventually proven to be untrue - that Mr Mistry may have been a front runner, when the Tatas were in the process of off-loading their 14.45 per cent in ACC. The 14.5 per cent stake was finally grabbed by Gujarat Ambuja. The change at the helm of Forbes Gokak affairs is now through. Shareholders are sure to await with bated breath as to what is now in store for them. Over to Mr Mistry!