Tata Motors to demerge its businesses into two separate companies. How will it affect shareholders?

Demerger likely to be completed in 12-15 months

Tata motors Representational image | Reuters

 Tata Motors, on Monday, revealed a plan to demerge the entity, Tata Motors Ltd (TML), into two separate listed companies.

In an exchanges filing, the company said this is being done to refine focus on the passenger and electric vehicle segments.

"The board of directors of TML, at its meeting today, has approved the proposal of demerger of Tata Motors Ltd into two separate listed companies housing A) the Commercial Vehicles business and its related investments in one entity and B) the Passenger Vehicles businesses including PV, EV, JLR and its related investments in another entity," the company said.

"The demerger is a logical progression of the subsidiarisation of PV and EV businesses done earlier in 2022 and shall further empower the respective businesses to pursue their respective strategies to deliver higher growths with greater agility while reinforcing accountability," Tata Motors said.

While the first entity will include the commercial vehicles and the businesses associated with it, the second will involve the passenger vehicles businesses that include electric vehicles, Jaguar Land Rover, and their associated businesses.

The demerger will be executed through National Company Law Tribunal scheme of arrangement.

Tata Sons chairman N. Chandrasekaran said the demerger will help the company "to better capitalise on the opportunities provided by the market by enhancing their focus and agility." "This will lead to a superior experience for our customers, better growth prospects for our employees and, enhanced value for our shareholders.”

How will the demerger affect shareholders?

Everyone who holds the shares of Tata Motors will retain identical shareholding in both companies after the demerger.

The demerger may be completed in 12-15 months after receiving shareholder, creditor and regulatory approvals.

Tata Motors shares on Monday ended 0.12 per cent down at Rs 987.20 apiece.

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