Morgan Stanley buys 1.73% in Tata Motors in block deal

Investment banker Morgan Stanley has bought over 50 million shares, amounting to a 1.73-per cent stake, in Tata Motors on behalf of an undisclosed client. The shares were reported to have been bought at an agreed price of Rs499.8 per share, at a near 10-per cent premium to Monday's closing price of Tata Motors stock of Rs454.55.

The scrip jumped as much as 5 per cent to hit a high of Rs477 a share. The shares, however, closed up 3.48 per cent to close at Rs470.35 against the previous session's closing at Rs454.55.

At Rs499.80 per share, the deal is valued at roughly Rs2,500 crore. According to the deal sheet, the book will open on Tuesday and close on Thursday. Morgan Stanley did not disclose the name of the buyer.

The deal comes days ahead of an EGM called by the automaker at Tata Sons' request to oust Cyrus Mistry as chairman of Tata Motors. Marketmen in the know said Tatas are buying the shares in their effort to gain an edge in the EGM voting.

Investment bankers say if Tatas are the buyer, the additional stake is intended to swing the EGM vote in their favour

The Tata Motors stock, which fell 2 per cent to close at Rs454 on Monday rose nearly 5 per cent on the the Bombay Stock Exchange (BSE) after the deal.  Its American Depository Receipt (ADR), however, rose 5 per cent on Monday following the news of the Morgan Stanley move.

The stock gained six out of seven trading sessions and rose 10.2 per cent in this period. So far this year, it gained 20 per cent.

As of 30 September 2016, Life Insurance Corporation (LIC) of India held 5.20 per cent stake in the company while ICICI Prudential Life held 1.56 per cent stake. Other major investors in the company include Abu Dhabi Investment Authority and Government of Singapore, which own 1.39 per cent and 1.65 per cent, respectively, in the company.

On December 22, shareholders of Tata Motors will vote on a resolution to remove Cyrus Mistry and Nusli Wadia as directors of the company. Tata Motors' ADR (American depository receipt) soared nearly five per cent in the US following reports of the deal. Shares of Tata Motors had ended two per cent lower on Monday in the domestic market.

The share purchase deal involves over 15 times the average delivery-based volume in Tata Motors on the BSE and the National Stock Exchange.

In the past one month, an average 8.34 million shares of Tata Motors have changed hands on a daily basis, of which 3.26 million shares were delivery-based.

Besides ordinary shares, Tata Motors also has shares with differential voting rights as well which carry one voting right per 10 shares, which amounts to 1.73 per cent of the total voting capital.

After considering DVRs, the promoter group has voting rights of 32.43 per cent stake in Tata Motors, while foreign portfolio investors own 26.7 per cent in the Indian shares and another 18.15 per cent in the ADR. Life Insurance Corporation has 5.11 voting rights. Other insurers and mutual funds own over 9 per cent of the voting capital, while retail shareholders and others own 8.55 per cent.

An ordinary resolution, such as the removal of a director, requires a simple majority (50 per cent plus one vote). In case of Tata Motors, the promoters would need another 17.57 per cent support from public shareholders to pass the resolution on Mistry and Wadia.  The cut-off date to vote at the EGM is 15 December. The deal to acquire 1.73 per cent will be done through a reverse book-building process. Market players said this was an unusual way to buy shares.

The identity of the buyer is being preserved perhaps to avoid any reaction from a probable seller of the stock. If the stock price surges ahead of the offer price, there may be too many sellers, which would then prompt another block deal with a higher price to acquire the shares.