As a Prof. of Strategy, for past 3 years I knew it was a matter of time before the situation exploded. Cyrus Mistry never had a chance as Ratan Tata handed over to him nothing short of a financial disaster. I assure you the worst is yet to come, and the blame will be wrongly placed on Cyrus’s shoulders. And, am tempted to say that I told you so in 2014 !
Excerpt from my Case study published (ref. 314-361-1) at The Case Center, U.K. in 2014
M&A Melodrama at Tata Group : Frenzy to Freeze
In 2004, the ‘sweet n shy’ Tata group embarked on an uncharacteristic pursuit. In a radical departure from an average of one acquisition each year during 1995-2003, the group carried out 51 mergers and acquisitions during 2004-08 i.e. one M&A deal every 35.8 days for 5 years in a row.
It may well be a world record in M&A space. Suddenly, they abandoned the M&A strategy in early 2009 !
The M&A had included the takeover of iconic companies as Corus, Jaguar Land Rover etc., as abruptly (as it had begun) in early 2009. And, they reverted to their historical average of one acquisition a year during 2011-14. The predominant question is what was happening at the Tata corporate office in 2004-08.
What raises serious questions on the TATAs corporate-level and business-level strategic planning are the following –
•abrupt abandoning of own acquisition strategy 2009 onwards
•impairment of assets, and distress sales of many assets
•the indefensible valuations of, and prices paid for the acquisitions
•huge debts that need to be serviced
•and the resultant slump in net profits etc.
As a Prof. of Strategy, as I researched more on the subject, I came across an intriguing statement from the then Chairman of the Tata Group, Ratan Tata. Ratan Tata had famously said, “I don’t believe in taking right decisions. I take decisions and then make them right.”
(Refer the book – Beyond Strategy: The impact of Next Generation Companies by Andersen M. Moesgaard and Flemming Poulfelt, published by Routledge, 2014. 134p).
But how does one make a (wrong, or not a right) decision like an acquisition made at an exorbitant price, right afterwards? It should be noted that Tata’s acquired around 25 companies between 2006-08. The fact is that the Tata’s bought so many companies at insanely high valuations as the global markets touched new highs in 2005-07.
The bull run continued till October 2007. On October 11, 2007, the Dow Jones Industrial Index hit a peak of 14,198.10. It is needless to state what happened after that. The group’s timing of these acquisitions could not have been worse. As the financial crisis of 2007-09 finally spiraled out of control in August 2007 and spread globally, all stocks were reduced to a fraction of their prices at the peak.
The facts lead me to believe that the corporate-level strategy managers at the Tata Head Office never once debated the fact why the managements of these companies were so keen exit these companies, and or businesses altogether.
Speaking of Corus, for instance, Philippe Varin’s (CEO Corus, at that time) judgement and decision to sell was nothing short of brilliant. Said Philippe Varin, CEO, Corus: “You don’t do this kind of thing twice in a lifetime.” He was right. Before Mr. Varin joined Corus in 2003, the company was flirting with disaster. Corus shares were trading at a 20 pence in 2003, and in 2007, he managed to sell it to Tata’s at 608 pence a share ! And, I suggest you Google the price charts over the years that followed.
Now, speaking of a typical acquisition by Tata in India, Hemu Ramiah and her brother’s judgement and decision to sell Landmark and their timing was brilliant too. After 10 years of struggle and loses, Tata’s are close to closing down most Landmark stores.
While, most managements secured an excellent deal for their shareholders by selling their companies to the Tata’s at the right price, and at the right time, the Tata group ended up burning serious cash and taking on huge debt.
Ratan Tata’s M&A overdrive nearly brought the group down to its knees. Finally, the group was forced to abandon the global acquisitions strategy in early 2009 as hastily as they adopted it in 2004.
My analysis based on secondary research of the Tata group points out that –
•the situation for the group is precarious, and the future of multiple group companies uncertain.
•the after-effects of the M&A frenzy will reveal themselves sooner than latter, and
•the feeble attempts of the group to get back to its feet are not sufficient.
The case study examines what was happening at Tata corporate office in 2004-08. Were they right then (M&A frenzy) or are they right now (M&A freeze)?
An understanding of the biases as well as the group context within which these strategic decisions were made, is crucial to knowing why do excellent managers make wrong decisions. The Case presents this context and poses whether it was –
•the cognitive biases,
•Groupthink,
•the Inside-view vs. the Outside-view, and or
•the Rules of the game (which determine what activities get rewarded, and hence pursued in a society or any group context) that led to such irrational exuberance amongst the strategic planners of the Tata group.
More often than not, a simple wrong decision can not be reversed.
Think about it. In a lighter vein, each time I ended up buying an ill-fitting pair of shoes, jeans, shirts etc., I had to eventually discard it. As for Tata Group, I assure you the worst is yet to come.
Excerpt(s) from Case study published (ref. 314-361-1) at The Case Center, U.K. in 2014. The disclaimer in the Case study holds
Forwarded as received
