ADITYA KULSHRESTHA AMIT KUMAR JAIN ANURAG TIWARI ABHISHEK GUPTA ASHISH DUBEY HEMANT MISHRA

TATA TEA ACQUIRE TETLEY
The company was rechristened as Tata Global Beverages to include the range of health and nutritional beverages it wants to enter into. Via subsidiary companies, Tata Tea manufactures 70 million kilograms of tea in India, controls 54 tea estates, ten tea blending and packaging factories and employs around 59,000 people. The company owns 51 tea estates in India and Sri Lanka, especially in Assam, West Bengal in eastern India and Kerala in the south. The company is the largest manufacturer of Assam tea and Darjeeling tea and the secondlargest manufacturer of Ceylon tea. Set up in 1964 as a joint venture with UK based James Finlay and Company to develop value-added tea, the Tata Tea Group has now product and brand presence in 50 countries. It is one of India's first multinational companies. 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 consolidated worldwide branded tea business of the Tata Tea Group contributes to around 86 per cent of its consolidated turnover with the remaining 14 per cent coming from bulk tea, coffee and investment income. The company is headquartered in Bangalore. With an area of approx 159 km² under tea cultivation, Tata Tea produces around 30 million kg of black tea annually.Instant tea is used for light density 100% teas, iced tea mixes and in the preparation of ready-to-drink (RTD) beverages. Tata Tea owns five brands in India: Tata Tea, Tetley, Kanan Devan, Chakra Gold, and Gemini.

Tata Tea to acquire Tetley
Tata Tea Limited (TTL) is the second largest tea company in India. It has a significant presence in over 35 countries. Branded teas contribute 88% of the consolidated turnover of the group, with the remaining 12% coming from bulk tea, spices and investment activities. In 2000, TTL had acquired Tetley a major UK tea manufacturer. Analysts had expressed doubts as to whether the deal would create value. Three years after the takeover, things seem to be improving. But there are still concerns as to whether TTL can service the huge debt burden resulting from the deal and whether the synergies projected before the merger can be realised. The case deals with all these aspects along with a detailed picture of how the acquisition actually took place and how the integration is being managed. Tata Tea is all set to acquire UK-based tea major, the Tetley Group, for a consideration of 270 million. This is likely to be the largest ever overseas acquisition by an Indian company,

and the Tatas¶ first major foreign takeover. Management consulting firm Arthur Andersen has structured the deal. What¶s left to be settled is the funding. Of the 270 million needed, Tata Tea is raising and equivalent of 70 million locally and will float a 100 per cent special purpose vehicle, which may be incorporated in the UK, through which Tetley will be acquired. The Indian tea company is talking to leading European and American banks to raise 200 million. There are unconfirmed reports that the Tatas are considering an interesting method to fund the acquisition ± it may get Tetley itself to provide the wherewithal to complete the acquisition. Tetley is a low-debt company and is capable of higher leveraging of its balance sheet. After the deal is successfully completed, the Tatas propose to take on Tetley¶s loan and continue with the repayment. The deal has to be approved by the finance ministry in India because it involves the remittance of 70 million. Under current Reserve Bank of India guidelines, automatic approval is allowed for overseas investments of up to $15million (10 million). An important step for Tata Tea was the acquisition of the Tetley Group (based in the United Kingdom) in 2000. It was a £271 million ($432 million) leveraged buyout. Tata Tea reportedly outbid the American conglomerate Sara Lee in what was described as the largest takeover of a foreign company by an Indian one to date. At the time, Tetley was the world's second largest tea company after Unilever's Brooke Bond-Lipton and had an annual turnover of £300 million. It was the market leader in Britain and Canada and a popular brand in the United States, Australia and the Middle East. Established in 1837, Tetley was the first British tea company to introduce the tea bag to the UK in 1953. The tea bag was followed by the first round tea bag in 1989 and the 'no drip, no mess' drawstring bag in 1997. Tetley now contributes for around two thirds of the total turnover of Tata Tea. From 2005 Tata Tea began a restructuring exercise to divest direct ownership of plantations in India, a process facilitated by subsidised loans from the World Bank's International Finance Corporation. In spite of a global presence, the brands are distributed differently depending on the location. As Tata tea is far better known in India and a powerful brand there, it is pushed on this market and countries with a large Indian population. Therefore Tetley is the company's global face and the largest markets focus on the Tetley brand. Where both brands co-exist in one market, Tetley is positioned as the premium brand.

Cessation of Credit

Th Way to Go?
Some anal t felt t at Tata Tea's decision to acqui e Tetley t ough a LB was not all that beneficial for shareholders. They pointed out that though there would be an immediate dilution of equity (after the GDR issue), Tata Tea would not earn revenues on account of this investment in the near future (as an immediate merger is not planned). This would lead to a dilution in earnings and also a reduction in the return on equity. The shareholders would, thus have to bear the burden of the investment without any immediate benefits in terms of enhanced revenues and profits. From the lenders point of view too there seemed to be some drawbacks. Because of the large amount of debt relative to the equity in the new corporation, the bonds were typically rated below the investment grade. LB as a concept did not seem to have found wide acceptance in the Indian financial system. Given the high rates of interest in the country, such debt did not

seem to be forthcoming, especially since banks and financial institutions seemed interested in deploying their funds in high- return investments rather than in an LBO. Also a deal of this sort required the acquiring company's SPV to be leveraged to a far higher extent than the generally acceptable level of 1:1 to 1:2 debt- equity ratio which Indian banks and financial institutions were comfortable with. However, inspite of all the odds, Tata Tea's acquisition of Tetley seemed to have set a new benchmark in the corporate Indian history of cross-border acquisitions. It seemed to have generated considerable interest and appreciation of the concept, as a viable alternative in Indian corporate circles. It remained to be seen how many would follow this new path, nuptials of the leveraged kind. NOWTata Tea, a part of the Tata group, on Thursday decided to change its name to Tata Global Beverages, to better reflect the group's international standing and the array of products it sells under different categories. The company, now earns more than 70% of its revenue outside India. The Tata Tea board approved the change in name which will now bring popular global brands such as Tetley, Eight O' Clock Coffee and other brands under Tata Global Beverages, even as the country's largest tea company by sales makes the shift toward being a beverages player. "This demonstrates the group's pride in its Tata parentage and heritage as well as an intention to build a new and strong global Tata brand," said vice-chairman RK Krishna Kumar, while announcing the consolidation of company's various beverages brands. The over $1 billion Tata Tea plans to take shareholder's approval for the change in name through a postal ballot.

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