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Case Studies

Case Studies


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Published by: api-3742812 on Oct 15, 2008
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Tata Tea was incorporated in 1962 as Tata Finlay Limited, and commenced business
in 1963. The company, in collaboration with Tata Finlay & Company, Glasgow, UK,
initially set up an instant tea factory at Munnar (Kerala) and a blending/packaging unit
in Bangalore. Over the years, the company expanded its operations and also acquired
tea plantations. In 1976, the company acquired Sterling Tea companies from James
Finlay & Company for Rs 115 mn, using Rs 19.8 mn of equity and Rs. 95.2 mn of
unsecured loans at 5% per annum interest. In 1982, Tata Industries Limited bought out


Tetley was the second largest brand of packaged tea in the global market, behind Unilever’s

Brooke Bond and Lipton brands.


The Lectic Law library’s lexicon defines a leverage buyout as “a mechanism under which a

company is acquired by a person or entity using the value of the company’s assets to finance

its acquisition. This allows (for) the acquirer to minimize its outlay of cash in making a



Tata Tea’s Leveraged Buyout of Tetley

the entire stake of James Finlay & Company in the joint venture, Tata Finlay Ltd. In
1983, the company was renamed Tata Tea Limited.

In the mid 1980s, to offset the erratic fluctuations in commodity prices, Tata Tea

entered the branded tea market. In May 1984, the company revolutionized the value-

added tea market in India by launching Kanan Devan tea3

in polypacks. In 1984, the

company set up a research and development center at Munnar, Kerala. In 1986, it

launched Tata Tea Dust in Maharashtra. In 1988, the Tata Tea Leaf was launched in

Madhya Pradesh.

In 1989, Tata Tea bought a 52% stake in Karnataka-based Consolidated Coffee

Limited-the largest coffee plantation in Asia, in order to expand its coffee business. In

1991, Tata Tea formed a joint venture with Tetley International, UK, to market its

branded tea abroad.

In 1992, Tata Tea acquired a 9.5% stake in Asian Coffee- the Hyderabad based 100%

export oriented unit known for its instant coffee through an open offer. This offer was

the first of its kind in Indian corporate history. Later, in 1994, Tata Tea increased its

stake in Asian Coffee to 64.5% through another open offer. This helped it consolidate

its position in the coffee industry.

In 1995, Tata Tea initiated a massive physical upgradation program at a cost of Rs 1.6

bn. The upgradation program, spread over four years, was meant to improve its

production facilities. In the same year, the company, along with a Sri Lankan partner,

bid successfully for a group of 20 tea estates in the famous Watawala plantations in

Sri Lanka.

In 1996, Tata Teafelt the need to develop into a truly national brand. It identified an

opportunity to enter the leaf tea segment in the South. Between 1996 and 1998, the

company launched Tata Tea Premium in Karnataka, Andhra Pradesh, Kerala and Goa.

In December 1999, Kanan Devan was relaunched in Kerala in an entirely new pack,

along with a fresh advertisement campaign. The company also planned to relaunch

Kanan Devan in other markets. The new pack, with the revamped Tata logo,

incorporated modern graphics while retaining the core properties associated with the

brand. The back panels on the pack were also made more interesting and informative.

To meet the demands of the American market, Tata Tea Inc. – a wholly owned

subsidiary of Tata Tea Limited – was set up in Florida to package and market instant

tea in the US. The tea was produced in Tata Tea’s factory in Munnar and then

processed in Florida. The company also launched Snapple, a ready-to-drink iced tea,

in the US. In 2000, it was one of the largest selling ready-to-drink teas in the US.

In order to tap the Japanese tea and coffee market, Tata Tea entered into a joint

venture with Hitachi of Japan – Tata Hitachi Sales Limited. In the mid 1990s, Tata

Tea formed a joint venture with Nippon Yusen Kaisha (NYK), one of the largest

shipping companies in the world. This joint venture, Tata NYK, aimed at playing a

major role in transport operations and management of seaports, inland container


Brand of Tata Tea that was very popular especially in South Indian markets. The Kanan

Devan variety went back over a century and was derived from the tea growing in the Kanan

Devan Hills (Tata Tea had tea estates on these hills) located in the eastern part of central

Kerala and adjoining parts of Tamil Nadu. The Kanan Devan name was used for decades for

selling bulk teas originating from these hills, and this led to a loose tea franchise in southern

India, particularly Kerala. With the growth in the branded tea segment, Tata Tea leveraged on

the name Kanan Devan to convert this loose tea franchise into a brand so as to move up the

value chain.


Financial Management

depots, and container freight stations.(Prior to this joint venture, Tata Tea had been

serving as an agent for NYK).

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