Tata Is In Talks With Microsoft To Join Its Digital Initiative To Challenge Reliance And Amazon

The Tata Group is reportedly in talks with Microsoft to join as an anchor investor in its new digital platform. According to some people familiar with the situation, Tata is ready to enlist the services of one or two strategic investors and begin a full-fledged fundraising campaign.

As major companies like Amazon and Reliance Industries pile into the Indian e-commerce market, Tata Sons Chairman N Chandrasekaran has raised the bar on modernising the group's diverse consumer businesses by combining digital assets across various businesses under a new entity.

As reported by Economic Times, some sources said that Chandrasekaran wants to follow Reliance Jio's lead, which saw the telecom raise Rs 1.45 lakh crore from investors in 2020, with strategic equity partners Facebook (Meta Platforms Inc.) and Google (Alphabet Inc).

According to sources, the Indian conglomerate hopes to finalise the anchor investors by early 2022. However, the talks with Microsoft may not result in a deal, they said.

An unnamed Tata Group insider said: “The challenge for a new investor is the proof of concept. Jio had a product which was up and running. In Tata’s case, all the different pieces are yet to fall in place. Where is the super app?”

Earlier this year it was reported that the Tata Group has set a target of raising $2-2.5 billion for its digital venture and Goldman Sachs has been entrusted with the task.

According to reports, Tata's platform, the super app called Neu, would operate as an e-commerce gateway for its consumer products and services, which will include everything from appliances to groceries and pharmaceuticals to resorts and jewellery.

In a still-evolving sector, this intends to compete with Amazon India and Walmart Inc's Flipkart to lure more than one billion Indian consumers. However, the regulatory uncertainty surrounding space has caused the launch to be postponed.

As per the sources, Chandrasekaran has been personally directing most of the early discussions and after meeting with Microsoft executives in the United States, he is said to have met with Microsoft India CEO Anant Maheshwari.

An insider said: “Investors are always open to the Tata Group, there is trust. With Tata Digital, the talks are about long-term plans and investors are also waiting to see consumer response to the app, once formally launched.”

Some of the funds that Chandrasekaran has tapped, particularly those from the Middle East, may be familiar with the Jio cap table and may thus invest through other arms, such as Flipkart's recent capital round, to avoid future conflict of interest.

However, Tata Digital has already bought controlling holdings in e-grocer BigBasket and digital health business 1mg, as well as investing in fitness company CureFit, for which the Tatas have invested over Rs 5,000 crore this fiscal year.

Big IT corporations like Alphabet Inc. and Microsoft have seen record sales as the Covid-19 outbreak has compounded the need to digitise enterprises. Demand has remained stable as businesses have transitioned to cloud computing, partly due to remote working, while Google's ad sales have increased as travel and shopping patterns have improved globally.

Needless to say that Microsoft has been acquiring companies or making investments in the tech sector. With seven agreements in the third quarter of this year, including six buyouts and a $5 million stake in budget hotel company Oravel Stays or OYO, it came close to breaking records.

Additionally, this year, Microsoft paid $19.7 billion for Nuance Communications, a speech synthesis and speech recognition business, making it the second-largest M&A deal ever after the $26 billion LinkedIn deal in 2016. The American Securities and Exchange Commission and the European Commission both approved its $7.5 billion acquisition of video game studio ZeniMax earlier this year.

At the same time, Microsoft also completed its acquisition of the Marsden Group, a company that specialises in industrial technology innovation and fast prototyping.