Slides on Tata Motors Eliminating ‘A’ Discrepancy And Driving Shareholder Value by Knight Assets & Co.
A Premium Global Auto Manufacturer
The Company has transformed itself into a global automobile company, with the Jaguar and Land Rover brands accounting for nearly 85% of revenues.
A Tale of Two Managements
- Ford spent US$ 50 Billion* over two decades of its ownership of Jaguar without ever turning an annual profit
- Tata Motors purchased Jaguar Land Rover from Ford in 2008, for US$ 2.3 Billion, and in a mere 5 years makes an annual profit equal to the acquisition price
Delivering on a Successful Strategy
Product portfolio receiving highest praise from commentators and customers alike
“It is an exceptional sports car, sharp and invigorating and full of life and charisma” Top Gear Jaguar F-Type review
‘A’ Discrepancy
36% Discount: ‘A’ Shares trade at an irrational discount to the Ordinary Shares.
Warren Buffett’s Perspective
“From time to time, a different supply-demand situation will prevail and the B will sell at some discount. In my opinion, again, when the B is at a discount of more than say, 1%, it offers a better buy than the A.”
Shareholder memo regarding Berkshire Hathaway’s Class A and Class B stock, 02 February 1999*
Possible Explanations for the Discount
- First company to issue dual class shares and is the only listed Indian company of relevance
- A lack of balance in the economic rights and liquidity between the two share classes
- Market Participants’ lack of experience and understanding in investing in such securities
(1) ‘Only’ Dual Class Company
Given the immaculate corporate governance standards of Tata Motors, the discount is not comparable to that of other Indian companies with such dual class share structures.
(2) Economic Rights and Liquidity
The ‘A’ Shares represent 15% of the underlying economic value of the Company and unlike the Ordinary Shares have no NYSE Listing.
(3) Efficient Market Pricing of the Spread
Tata Motors’ dual class shares should trade at similar spreads to that of other prominent global companies.
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