Investments in new era companies can offer low cost due diligence for the Tatas, alliances for go-to-market strategy, service partnerships, acquisition targets and the likely advantage of a huge capital gain when unicorns worth a billion dollars or others emerge from strategic investments.
There is an internal precedent for the Tatas in there. The Tatas invested $677 million in August 2006 in Energy Brands Inc, a maker of health drinks for a 30% stake. They sold it to the Coca-Cola Company just a year later for $1.2 billion, a profit of over $500 million!
Today, Tata Sons, the group’s holding company, holds 72% of the capital of TCS. Even if the Rs 18,000 crore spent on the takeover were distributed as a dividend, Tata Sons would receive a cash sum of around Rs 13,000 crore from TCS.
Tata Sons has bought large stakes in companies such as Big Basket and 1mg which are in the foreseeable field of using new, but well-developed internet technologies to serve the Indian market. If the Rs 13,000 he receives from TCS is spent on new-age ventures, it may be wiser to do so.
The thing is, TCS has extensive exposure and experience across all industries and technologies. It is a powerful intellectual capital. A small amount of financial capital strategically deployed using the firm’s strong in-house talent would generate a story that shareholders would like to bet on in the long run.
(The author is a veteran journalist and commentator. He tweets as @madversity.)