MERGERS AND ACQUISITIONS IN TEA INDUSTRY

TATA TEA LTD. & TETLEY

Group 4
Jonald Dalmacio
Normalyn Macaysa
Sean Zacarae Babas
 1. Provide an overview of the major players involved in the merger, what are
the companies mission, vision and values. What services or products do
they offer? What is their value proposition?

AN OVERVIEW OF TATA TEA LIMITED, MISSION, VISSION, and VALUE

PROPOSITION

Overview
TATA Tea was set up in 1964 as a joint venture with a UK based James Finlay and
Company to develop value added tea. From a mere share of 3% in the mid 70's to become India's
second largest tea producer, Tata tea has come a long way. (www.tatatea.com) the operations of
Tata tea and its subsidiaries focus on branded product offerings in tea but with a significant
presence in plantation activity in India and Sri Lanka. The Tata tea brand leads market share in
terms of value and volume in India and has been accorded the ‘super brand' recognition in the
country. Tata tea also has 100% export-oriented unit manufacturing instant tea in the state of
Kerala, which is the largest such facility outside the United States.

Mission
To be the most admired Natural Beverages Company in the world by making a big and
lasting difference in Tea, Coffee and Water.

Vision
We will focus on creating magical beverage moments for consumers and eternity of
sustainable goodness for our communities.

Value Proposition
Our company add up to something unique that gives a sense of responsible irreverence in
all what we do.

AN OVERVIEW OF TETLEY, MISSION, VISION, and VALUE PROPOSITION

Overview
In 1837, two brothers, Edwards and Joseph Tetley started to sell tea and became so
famous that they set up as tea merchants. In 1856, in partnership with Joseph Ackland, they set
up “Joseph Tetley and Co., wholesale tea dealers”. Tea was rationed during World War II, it was
not until 1953, just after rationing finished, that Tetley launched the tea bag to the UK and it was
an immediate success. The rest, as they say, is history. The tea bag had captured the public’s
imagination and desire for convenience. Within 10 years it revolutionized how Britons drank
their tea and the old-fashioned tea pot had given way to making tea in a cup using a tea bag. In
1974 Tetley Tea Company was bought by J Lyons who merged it with the Lyons tea business to
form Lyons Tetley. 1978 Allied Breweries acquired J Lyons’ Businesses then as Allied Domecq
sold them in the 1990s. The Tetley Group was created in July 1995, when a group of investors
bought what was then the world-wide beverage business from Allied Domecq. On 10th March
2000, The Tetley Group was sold to Tata Tea Limited, one of the world’s largest integrated tea
businesses.

Mission
A global business on a mission to lead the world in “Good for You” beverages.

Vision
We believe passionately in making the world a better place through life-enhancing
sustainable hydration-and it’s our mission to make this a reality.

Value Proposition
To lovers of a high quality tea who are seeking wellness, taste, quality and comfort, we
introduce to you a new joy from South -Asia-Tetley Premium Masala. A type of Masala Chai
that is rare for North America, Tetley Premium Masala lets you discover exciting new sensation,
clear your mind, and provide a home-made warming, quality taste. This health choice of a
combination of natural spices delivers flavor and commitment to staying healthy.

1. Provide a brief history of the two companies; how well they performed financially,
revenue, stock price recent history, etc.

HISTORY OF TATA TEA LTD.

TATA TEA LTD. is one of India’s leading tea companies and is the second largest
supplier of branded tea in the world. Vertically integrated, Tata Tea produces 40 million
kilograms on 18,000 hectares on about three dozen plantation in India and Sri Lanka. Branded
tea accounts for 86 percent of sales, with the remainder coming from bulk tea, coffee, and
investments. The subsidiary Tata Coffee has 8,000 hectares under production, producing more
than 9,000 metric tons a year. Tata accommodates every budget with its brands sold in India,
which include Tetley, Kannan Devan, Chakra Gold, Gemini, and Tata Tea (one of the country’s
top sellers). The company has the largest instant tea processing facility outside the United States,
which produces exclusively for export from India. Two-thirds of sales came from the United
Kingdom’s Tetley Group, which Tata Tea acquired in 2000 in the largest takeover of foreign
company by an Indian one to date. Tetley then became the company’s main brand for world
markets with Tata Tea doing business in 40 countries. Tata Tea also has an instant tea plant in
Florida, where the U.S subsidiary is based. Since the mid-1980s, Tata Tea has been progressively
shifting away from the risk-laden plantation business into the marketing of tea (and coffee) to the
consumer. In 2005, the company began selling its tea estates to their worker.

TATA TEA LTD BRAND PORTFOLIO

Tata Tea is the largest packaged tea brand in the country with one in three Indian
households having consumed it over the course of last year
• Tata Tea Premium • Tata Tea Life
• Tata Tea Gold • Chakra Gold
• Tata Tea Gold Darjeeling • Gemini
• Tata Tea Agni • Kannan Devan
 Table 1

TATA TEA LTD

Turnover $114 million (570Cr)
Operating profit $36 million (180Cr)
Employees 59740
Tea Estates 54
Key Market India

HISTORY OF TETLEY TEA

In 1822, brothers Joseph and Edward Tetley sold salt from a pack horse in Huddersfield,
Yorkshire, England. They started to sell tea and were so successful they set up as "Joseph Tetley
& Co." tea merchants in 1837. Relocating to London in 1856, they set up as "Joseph Tetley &
Company, Wholesale Tea Dealers".
In 1952, in an early example of cross promotion, Pegula Clark's single "Anytime Is Tea
Time Now" was used to advertise Tetley on Radio Luxembourg. Tetley was the first company to
sell tea in tea-bags in the United Kingdom in 1953. In 1989, following extensive consumer tests
establishing Britons' preferences, Tetley launched the round tea bag.
The Tetley Group was created in July 1995, as a result of a buy in management buyout,
when a group of investors bought the worldwide beverage business from Allied Domecq. The
Tetley Group was bought by India's Tata Group in February 2000, for £271 million.

It was one of the largest overseas acquisitions by an Indian company at that time. Tata
Group is one of India's largest business conglomerates, comprising more than one hundred
companies, including Tata Global Beverages. The acquisition has helped Tata's business
ambitions to hold a global tea company.
As India reduces import duties on tea, Tata Global Beverages has offset its reduced share
of the domestic market by gains in Europe and North America. In April 2014, Columbia Law
School and The Guardian reported that some of Tetley's tea is harvested by workers who do not

receive the minimum wage in India.

In a statement placed on its website, Tetley's parent company, Tata Global Beverages,
announced it had "appointed legal advisors to verify compliances by independent review. The
legal advisors will also appoint and commission an independent third party Solidaridad to make
an assessment into the living and working conditions of the workers at the APPL plantations
(Amalgamated Plantations Private Limited.
The company has claimed that APPL is not used in Tetley tea internationally, and that it
has supplied only one small shipment of Assam tea for use in Tetley in India in the last three
years. In October 2014, UNICEF announced that they are working with tea companies and with
the Ethical Tea Partnership (ETP) to tackle child exploitation in Indian tea communities. The
three-year program is funded by a number of advocacy groups, Tata Global Beverages, and
Tesco.

TETLEY BRAND PORTFOLIO

An astonishing forty-five million cups of Tetley are drunk around the world every day
and enjoyed in 70 countries.
• Tetley Black Tea
• Tetley Flavored Tea
• Tetley Green Tea
• Tetley Rooibos
• Tetley Fruit and Herbal
• Tetley Infusions
• Tetley Cold
• Tetley Chai Latte

Table 1-1

TETLEY
Turnover $415 million (2250Cr)
Operating profit $42.6 million (213Cr)
Employees 110
Tea Estates 0
Key Market Britain,Canada,Australia,US
 2. Explain based on your research the need(s) for why this merger, acquisition, alliance,
JV is happening or happened.

Why the Merger & Acquisition (Tata Tea Story)

· Tea prices in India falling
· Loose, unbranded tea is muscling out the branded players
· Stagnating tea consumption in India
· Low market Share ( 40% Unilever , 18% Tata , yr 2000)
· Strengthened competition from HLL post Lipton-Brooke bond merger
· Need for increase in Global Presence

Why the Merger & Acquisition (Tetley Story)

· Rapidly Shrinking European market
· Changing customer preferences
· Increased competition from Brooke bond
· Tetley's profits fell to £4.98m in March 1999, compared with £35.7m in the previous year
· Increasing debts

4. If available, provide a critique of the business party’s proxies. We’re the proxies
transparent, ethical and did they explain the benefits and new strategies of the deal
party?

3. Explain how the deal is / was structured; was it all cash deal or a combination of stock
transfer, new shares, was it debt financed, was it a management buyout, etc

Facts about the Merger and Acquisition

➢ The first ever leveraged buy-out (LBO), largest cross-border acquisition by any Indian
company
➢ Tata Tea's strategy of pushing for aggressive growth and worldwide expansion
➢ Tata Tea – $114(570 Cr) Million Company
➢ Tetley - $415(2250 Cr) Million Company
➢ The acquisition of Tetley made Tata Tea the second biggest tea company in the world
with the expected combined turnover worth Rs. 2,800 – 2,900 crore. (The first being
Unilever, owner of Brooke Bond and Lipton)

Advantages
 ➢ Heavy Interest & principal forces management to improve performance & operating
efficiencies such as Cost improvisation – cost reduction
➢ Divesting non-core business
➢ Investing in technological upgrades
➢ Significant reduction in agency cost
➢ Tax shield
Disadvantages
➢ Financial distress – uncertainties
➢ Increased fixed costs associated with debt financing can worn out the effect in case of
downturn in business cycles
➢ In Leveraged acquisition, banks have a say in what is being done

Rationale behind the Merger

 MINDSHARE:
Tata tea had no marketing expertise, whereas Tetley is the most easily recalled tea
brand in the world, known for its innovation, whether in packaging or marketing the
brand.
 NEW PRODUCTS
Tetley would give Tata Tea access to specialty products such as: flavored teas,
herbal teas, organic teas, and decaffeinated teas.
 NEW MARKETS
Tata Tea could help Tetley to launch the brand in India, to enter the premium
segment, as well as in the Middle East and Russia, traditional bastions of Tata Tea.
 GLOBAL PRESENCE
etley had the second largest branded tea portfolio in the world and a foothold in
35 countries

Synergies

 One of Tata tea's strength is its many estates. Tata tea could help Tetley in his
requirement of Indian teas. (More than 8,000,000 kg of Indian teas in a year)
 Tetley also bought teas worldwide, blend and package them, which is a very special skill
that
 Tetley possessed. It sourced teas from various countries and its expertise in this area was
unrivalled.
 Tetley gets access to Tata Tea’s gardens and production base and the latter gets
 Tetley’s premium brands and global distribution network
 Tata gets access to Tetley „s Standardized management practices, quality performance
norms and customer focus practices
 Tetley could leverage Tata’s R&D and expertise in tea cultivation and manufacturing
 Tata could benefit from Tetley’s extremely good logistics management skills
Challenges
 Acquirer Company in this case was smaller than the company it acquired
 A cross border acquisition, it was bound to have its fair share of cultural problems
 A heavily ring-fenced, leveraged acquisition, banks had a say in what was being done

4. Were there any defensive strategies used on the part of the seller? Provide details
5. Were there any management incentives built into this deal? Describe.
6. Based on your research is this deal a “vertical”, “horizontal” style of merger,
acquisition or would you classify it as a strategic alliance in your opinion? Through
your research what do you conclude is / was the overall strategy(s) behind this merger?
Was it for possible tax reasons, revenue enhancement, increased market share, new
strategic direction, avoidance of another hostile takeover or a combination of any or
all?

From vertical integration

Tata Global Beverages followed an India-focused vertical integration strategy till the late
1990s. Tata Global Beverages owned most parts of its value chain – from tea plantations, and
processing and packaging units, to distribution networks. It operated two separate marketing
networks for its tea and coffee businesses.

To global horizontal expansion

After India’s economic liberalization in the 1990s, the Tata Group increased its focus on
becoming a leading global brand across sectors. In early 2000s, Tata Global Beverages decided
to anchor the company to a high-margin global distribution and marketing organization. Tata
Global Beverages achieved this through a three-pronged strategy, taking the company from a
local tea player to a large player in the coffee segment and the second largest tea maker in the
world.
A Leveraged Buy-out is defined as the acquisition, financed largely by borrowing, of all
the stocks, or assets, of the hitherto public company by a small group of investors. In an
Leveraged Buy-out, debt financing typically represents 50% or more of the purchase price. The
debt is secured by the assets of the acquired firm and is usually amortized over a period of less
than ten years. As funds are generated by operations or from the sales of the assets of the
acquired firm the debt to be paid off is scheduled. The sale of the assets occurs when the investor
group is motivated to take control in part because of what it considers unwise or ill-fitting
acquisitions by the firms in the past.
There may be limited equity participation on the part of outside investors such as pension
funds and insurance companies often with the provision that the equity interest would be
repurchased after pre-determined period to provide a specified yield.
Following completion of the buy-out, the company is usually run as a privately held
corporation rather than a public corporation, at least for some years, after which resale of firm at
a profit is anticipated.
Leveraged Buy-out is implemented for the following:
 To generate additional cash flow from interest tax shields.
 Reduce capital expenditures.
 Sale of assets.

Post Merger

 Tata and Tetley formed several groups – tea procurement group, geographic expansion
group, R&D sharing
 Legal merger took time as Tetley D/E ratio was too high and it needed to come down to
1:1
 Initial Cultural differences
 As of FY12, Tetley brand contributes to 40% of Tata Global Beverages revenue and the
only brand under Tata Global Beverages stable with presence across the globe
 Acquired other brands like Good Earth, Jemca, Joekels Tea, Vitax, Grand and Eight
O'Clock Coffees
 Looking for Organic growth in India
 No buying of regional brands in India
Focus on Mid and premium end of the tea category
 Luxury brand „ Tata Veda „ launched (7000/kg) in 2012
 Plans of another acquisition of Global Tea brand in next two years
 Starbucks is also selling the Tata Tazo brand of tea, a brand created by the
 Tata brand and the Tazo brand of Starbucks

9. Was this a good, bad or ugly deal in retrospect? Explain your position on the successes
or failures in this deal if any.

Mergers and Acquisitions are the most important components of modern corporate
finance. The growing tendency of capital concentration and company’s preference for external
expansion, rather than internal way of development, determines the significance of mergers and
acquisitions within the bounds strategic planning of company’s development.
The increasing number of Merger & Acquisition activity all around the world became
possible because of increasing convergence of underlying knowledge-based assets due to
worldwide competition and globalization, which gave an opportunity for companies to expand
their Merger & Acquisition activity not only domestically, but also on international arena
through cross-border cooperative activity. The Merger & Acquisition activity have a continuous
nature and worldwide process of capital concentration is far from completion.
The finding is summarize as follows:
First of all, Tata Tea Ltd. had a major acquisition deal of Tetley in the year 1999 2000.
Also at the same time, Tata Tea’s competitors Hindustan Lever Ltd. were also involved in a
series of Merger & Acquisition activities.
Secondly, both the companies engaged in Merger & Acquisition activities because they
wanted to increase their market shares and increase profitability. When Tata Tea acquired Tetley,
it was concerned with strengthening its position and to diversify geographically through a
dynamic merger activity.
Thirdly, I uncovered that the consequences of the merger activity. Tata Tea Ltd. steadily
increased its market share and had significant variations in the market share over the last few
years. The overall effect of the acquisition on market share ranged from neutral to positive.
Nevertheless Tata Tea boosted sales revenue and shareholders value.\
The financial performance of Tata Tea improved though at a slow rate and both ROA and
ROE had been positive so far.
Merger & Acquisitions waves are sweeping across the tea industry worldwide. Surely,
the decision to acquire Tetley could be termed as prudent and at the right moment for Tata Tea.
More so, when rival Lever is hell-bent to take vigor out of other’s cups of tea.