Tata Motors has received resounding approval from its shareholders for the scheme of arrangement to convert shares with differential voting rights (DVR) into ordinary shares, with an overwhelming 99.8% of votes in favor. This move, disclosed in a recent stock exchange filing, marks a significant step for Tata Motors in simplifying its capital structure.
Key shareholders including LIC, Vanguard, SBI MF, Rakesh Jhunjhunwala family, Blackrock, ICICI Prudential AMC, and Norges Bank have backed the conversion plan. The scheme, initially announced in July last year, involves issuing seven ordinary shares for every 10 A-ordinary shares held. Subsequently, all outstanding A-ordinary shares will be canceled.
The closing prices indicate that ordinary shares of Tata Motors closed at Rs 1013.8, while the DVR ended at Rs 684.55, still at a 3.7% discount to ordinary shares based on the swap ratio. Proxy advisory firms have recommended ‘for’ votes on the resolution, highlighting the benefits of simplifying the company’s capital structure and eliminating the price disparity between A-ordinary and ordinary shares.
According to IIAS, the conversion will lead to a reduction in the overall capital base of the company, making it 4% earnings per share (EPS) accretive for all shareholders. This, in turn, is expected to improve the overall market capitalization of Tata Motors. Stakeholders Empowerment Services noted that the termination of the DVR program is crucial for Tata Motors to proceed with its proposal to demerge into two separate listed companies. Earlier this year, Tata Motors announced plans to create separate entities for its commercial vehicles business and its passenger vehicles businesses, including Jaguar Land Rover (JLR).
The termination of the DVR program signifies the end of an innovative fundraising avenue for Tata Motors, which allowed promoters to raise capital without diluting their voting power. Such instruments are popular in the US, particularly among new-age companies. However, changes in regulations no longer permit Indian companies to issue shares with DVRs.
With the shareholder nod secured, Tata Motors is now poised to streamline its capital structure, enhancing transparency and governance within the company. This move is expected to have a positive impact on its future strategic initiatives, including the proposed demerger, and could potentially unlock significant value for its stakeholders.
Tata Motors’ successful resolution marks a milestone in corporate governance and capital restructuring, setting a precedent for similar actions in the Indian market. As regulatory landscapes evolve, companies are increasingly focused on optimizing their structures to drive efficiency and create long-term value for shareholders.
