Tata Sons to get Rs 2,300 cr for TCS transfer to Orchid

Tata Sons will make a windfall gain of Rs 2,300 crore (Rs 23 billion) from Orchid Print India Ltd, an unlisted Tata group company, for transferring Tata Consultancy Services to it.

Orchid will pay Rs 2,300 crore as consideration for acquiring Tata Sons' information technology division, TCS, within three days of its proposed initial public offering.

According to the scheme of arrangement between Tata Sons and Orchid Print India, the transfer of TCS is expected to be achieved by April 1 this year. Further, Orchid is expected to launch the IPO before September 2003. Orchid will also approach the Registrar of Companies, Mumbai, for a change in name to Tata Consultancy Services.

Tata Sons sources refused to comment on the issue. But sources close to the deal said the Rs 2,300-crore consideration does not reflect the valuation or capitalisation of TCS.

The transfer of TCS to Orchid was approved by the shareholders of Tata Sons at an extra-ordinary general meeting on January 3, 2003. As part of its overall business re-organisation plan, Tata Sons had decided to corporatise TCS to achieve global size, greater financial strength and flexibility to grow through acquisitions using its own stock.

The transfer of TCS to Orchid would be followed by an offer for sale by Tata Sons Ltd and subsequently an IPO by Orchid.

This would provide an opportunity to Tata Sons and the shareholders of Orchid in future to realise the value of their holding through sale of their shares after Orchid is listed in the stock exchanges.

Tata Sons would also directly participate in the profits of Orchid to the extent that they are distributed as dividends and indirectly in its accumulated profits. The shareholders of Tata Sons too would, in a similar manner, gain from the profits made by Tata Sons through its holding in Orchid.

The scheme provides Tata Sons the first right over the proceeds of the IPO if Orchid does not honour the payment. It also stipulates that if Orchid does not pay Rs 2,300 crore to Tata Sons within three days of the IPO, it would have to pay an interest mutually agreed upon by the two companies.