Tata Motors to convert DVR shares to ordinary

Tata Motors Ltd has announced its intention to simplify its capital structure through a Scheme of Arrangement. As part of this scheme, the company plans to reduce and cancel its \’A\’ Ordinary shares. Additionally, in exchange for every 10 \’A\’ Ordinary shares with a face value of INR 2, the company will issue 7 fully paid-up new Ordinary shares, also with a face value of INR 2. This issuance will serve as consideration for the reduction of the \’A\’ Ordinary shares.

To facilitate the smooth transfer of consideration, the company will establish a trust before the Scheme takes effect. This trust will act on behalf of the relevant shareholders as outlined in the Scheme and receive the new Ordinary shares from the company. Once specific obligations, including taxes and other actions specified in the Scheme, are fulfilled, the trust will distribute the remaining new Ordinary shares to the relevant shareholders in accordance with the terms of the Scheme.

Here are the key points and impact of the Scheme:

1. Approval: The Board of Tata Motors Ltd has already given its approval for the Scheme of Arrangement, which includes the capital reduction of the \’A\’ Ordinary shares and the issuance of Ordinary shares as consideration for the reduction.

2. Premium Consideration: The Capital Reduction Consideration represents a 23% premium over the price of the \’A\’ Ordinary shares.

3. Value Accretive: By reducing the number of outstanding equity shares by 4.2%, the Scheme is expected to be value accretive for all shareholders.

4. Simplification of Securities: The termination of the ADS program and the proposed capital reduction of \’A\’ Ordinary shares will lead to the consolidation of all traded equity securities of Tata Motors into Ordinary shares, which will be listed exclusively on NSE and BSE.

5. Historical Background: The \’A\’ Ordinary shares were initially issued by TML in 2008 and have been subject to regulatory changes. Currently, they trade at a discount of approximately 43% compared to Ordinary shares.

6. Independent Oversight: The Scheme involves the establishment of a Trust with an independent third party acting as a Trustee to ensure compliance with applicable laws and oversee the necessary actions for the Scheme\’s implementation.

7. Approvals: The implementation of the Scheme is contingent upon obtaining regulatory and shareholder approvals.

For this transaction, PWC will serve as the independent registered valuer, while Citigroup and Axis Capital will provide fairness opinions for the \’A\’ Ordinary and Ordinary shareholders, respectively. Cyril Amarchand Mangaldas is acting as the legal advisor to TML for this significant undertaking.

Axis Capital, known as India\’s Preferred Investment Banking & Institutional Equities Partner, has provided the Fairness Opinion, expressing its endorsement of the Scheme.

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