The Employee Buy out:

Team
Jose
Renju.V
Shemesh

12/08/2021 1
 What Does Employee Buyout -
EBO Mean?
 A restructuring strategy in which
employees buy a majority stake in their
own firms.
 An employee buyout is an increasingly
popular succession option. In effect, you
sell the business to its employees. The
employees become the new owners -
though often most existing business and
management structures stay in place.
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 Objective
 To find out the Employee Business Model
Adopted by Tatas.
 The factors that are essential for the success of
Employee Buy Out.
 Analyze the success of EBO in southern
operation of Tatas and its failure in their
northern operations.
 Finally in understanding in what way has the
EBO Model ensured corporate social
responsibility of the company, Tata Tea and
social transformation as a whole?
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 Index
 INTRODUCTION
 Company profile

 Tea in India

 Crisis in Tea plantations in India

 The Tata Group

 Tea Plantations of Tatas

 The Employee Buy Out and the Formation of KDHPCL

 Management of KDHPCL: Bottom up as against Top

down  
 EBO Model: Critical Success Factors

 EBO at KDHPCL: A Win - Win Situation?

 EBO as a CSR Measure of the Tatas

 EBO: A Suitable Model for NIPO?

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 CONCLUSIONS
 Company Profile
 Set up in 1964 as a joint venture with UK-
based James Finlay and Company
 Represent the world's second largest global

branded tea operation with product and

brand presence in 40 countries.
 The Company is headquartered in Kolkata

and owns 27 tea estates in the states of

Assam and West Bengal in eastern India,
and Kerala in the south.
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 The importance of this company to India’s
economic performance is reflected through its
revenue of $ 21.9 billion (in the year 2005-2006)
 Market Capitalisation of $ 52.3 billion. The Tata

Group companies employ nearly 2,50,000 people

and have operations in more than 54 countries
across six continents.
 Integrity, understanding, excellence, unity and

responsibility are studded as core values of the

company
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 Products and Brands
 Five major brands in the Indian market - Tata
Tea, Tetley, Kanan Devan, Chakra Gold and
Gemini.
 Tata Tea's distribution network in the country with

38 C&F agents and 2500 stockists caters to over

1.7 million retail outlets (ORG Marg Retail Audit)
in India.
 With an area of approx 15,900 hectares under

tea cultivation, Tata Tea produces around 30

million kg of Black Tea annually.
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 Specialty of Munnar
 The company has a 100% export-oriented unit
manufacturing Instant Tea in Munnar, Kerala.
 The unit's product is made from a unique

process, developed in-house, of extraction from

tea leaves, giving it a distinctive liquoring and
taste profile.
 Instant Tea is used for light density 100% Teas,

Iced Tea Mixes and in the preparation of

Ready-to- drink (RTD) beverages.

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 Subsidiaries
 Tata Tea has subsidiaries –

– The Tetley Group, Headquartered in Great Britain, Tetley is the

second largest tea bag brand in the world, and Tetley products are on
sale in over 40 countries.
– Tata Coffee, the largest Coffee Plantation Company in Asia with
estates located in Coorg, Hassan & Chickmagalur districts of
Karnataka. The Company also grows Pepper and Cardamom in its
Coffee Estates. The Company's Timber resources include Rosewood,
Silver Oak and other miscellaneous trees.
– Tata Tea Inc, United States
– Associate Companies
– Watawala Plantations Limited, Sri Lanka.
– Kanan Devan Hills Plantation Company Pvt. Ltd, Kerala

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 Quality Control
 Tea Sourcing
– TATA Tea estates spread across Assam, Dooars and Kerala.
– Auction centres located at Guwahati, Calcutta, Siliguri, Cochin,
Conoor and Coimbatore
 Tea Blending
– experienced and skilled team of Tea Tasters and Blenders .
– specific requirements of Tea Tasting to deliver consistent quality of
tea as per the standards.
 Tea Packeting Units
– experienced and skilled team.
– 5 wholly owned Packeting units and 4 Third Party units where a
team of Quality Group Personnel are located to monitor and
oversee laid down Quality standards.

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 Customer Complaint Management System
– regular feedback on quality deliveries is encouraged by
interacting with valued Customers.
– customer complaints are studied, analyzed.
 Bench Marking 
– to maintain product superiority, competition, regular
Benchmark tasting of competitive Brands is carried out by the
Head Quality Group.
 Development of New Blend Formulations
– Q-Group works closely with the Marketing team to design
and develop new blends for emerging markets.

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 In February 2007- decided to divest a
major portion of its shares in its NIPO.

 To be called as Amalgamated Plantations

Pvt. Ltd. (APPL), it would cover a vast
portion of tea estates of 24,000 hectares
in Assam and West Bengal.

 Focus only on marketing of its products

and enhancing of its brand image in tea
business.
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 Kanan Devan Hills Plantation
Company Pvt Ltd
 The Tata Tea had sold off 17 tea
estates in the South to the co-
operatives formed by its employees
named KDHPCL.
 Reason:

 Excess of Production

 Declining Prices for its producers.

 Severe competition from the rest of

the World.
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 Tea in India
 India took a lot of pride for its tea
cultivation mainly due to the fact that
tea has been indigenous to India and
tea industry has been a substantial
contributor to the country’s GDP and
its foreign exchange earning.
 It contributes to around 30% of global

tea production.
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 Crisis in Tea plantations in India
 The tea plantations were stuck with severe crisis from
the early 1990s.
 Reason:

 Producer prices had dropped sharply

 There was a decline in the global demand for tea.

 The increased use of tea bags and soluble instant tea

effectively reduced the quantity of tea leaves needed

per cup.
 Increasing labor costs.

 The lower prices for Indian tea is attributed largely to

the ageing tea bushes in estates and also due to the

lower prices fetched by CTC tea. (CTC refers to cut,
tear and curl, a method of manufacturing black tea in
India, whereby the tea leaves are machine chopped
into uniform and small pieces).
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 Tea Plantations of Tatas

 The tea estates of Tatas in the North

through their North Indian Plantations
Operations (NIPO) are spread over the
states of West Bengal and Assam.

 Their plantations in the south called the

South Indian Plantation Operations (SIPO)
are spread in the Western Ghat regions, the
major ones located in the Idukki district in
Kerala known as the Kannan Devan Hills.

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 The Employee Buy Out and the
Formation of KDHPCL

 Tatas and the management of SIPO thought of a

unique Employee Buy Out (EBO) model where
employees themselves became partly the owners
of the company.
 A business plan was formulated for running it for

the next 10 years. About 12,441 employees now

became the shareholders in KDHPCL holding
approximately 68% of the equity stake, 19% was
held by Tata Tea, 7% by the trust formed for the
purpose and the remaining small percentage by
other parties.
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 A fine blend of debt and equity @ KDHPCL

EBO

equity stake Debt

87% 13%
Employees
Holding 68% Trust
Share 7%

19% Financial
By Tata Tea Institutions
6%
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Continued….
 The new company would be free to auction
its teas to any prospective buyer.
 company would not need to maintain Tata
Tea’s high cost offices in Kolkata and Kochi.
 Tatas retaining 19% of equity in the new
company provided a sense of security and a
boost to the morale of employees who were
venturing into a challenging task.

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The arguments put forth in favor
of an EBO model are:
 Since the employees have a share in the
company’s success, an EBO keeps the motivation
level of employees high
 When selling the business for the party becomes

inevitable, then the EBO ensures that the

workforce and the status quo of the company is
maintained eliminating the uncertainty arising from
selling to an outside party
 An employee buy out is attractive since it spreads

the wealth across a larger number of people

 It may raise more equity which results in

transactions being less dependent on external debt

financing.
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

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 Management of KDHPCL:
Bottom up as against Top down

 The formation of Board of Directors was highly

representative in nature with due representation of
workers and staff in the board along with two
independent directors.
 KDHPCL a truly participatory nature were facts like 68
per cent of its shares held by nearly 12,441 employees
of the new company, a workers' representative and a
staff representative on the board of directors, and
several advisory and consultative participatory
management committees – comprising a cross section
of employees – at every level of the estate, factory
management, and company level
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 EBO at KDHPCL: A Win - Win
Situation?
 The new company’s annual reports in 2006 revealed
a post tax surplus of Rs 2.37 crore .
 Company had declared a dividend of 14% on the
very first year of operations.
 The average productivity of the company which was
about 28-30 Kg under the Tata Tea had gone up to 46
Kg under the KDHPCL.
 The company had also received the biggest
export order of 35 million Kg worth of INR 21
crores from four countries such as Kenya, UK,
Iran and the US.
 Won Golden Leaf India Award held in Coonoor
and Dubai in 2005 and 2006.
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 The EBO model through the
creation of KDHPCL benefited
the employees too.
 Increase in the motivation level of
employee turned owners.
 Positive impact on the performance

and the productivity of the plantations

because of private incentive.
 The very feeling of working for their

own company gives them immense

satisfaction.
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 EBO as a CSR Measure of the
Tatas
 The EBO model in itself ensures factors like
economic, social and environmental
sustainability by protecting the employment of
the employees, ensuring a status quo with
respect to their geographical working
environment.
 For improving the weaker sections of the
plantation workers, the Tata's have proved
themselves to be responsible to run many
organizations and welfare projects in the areas
surrounding the plantations.
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EBO: A Suitable Model for NIPO?
 It would comprise of 20 tea estates in
Assam and four in West Bengal. Tatas
were to retain 20% stake in the new
company, IFC and ILFS 20% each and the
remaining 40 were to be shared by
Global Managed Services, Tata
Investment Corporation and the
plantation workers who were expected to
have a stake of 15-20%. The process of
transformation was to be completed by
April 2007.
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 Failure of the model in the
northern operations of the Tata's
 The plantation trade unions opposed the move.
 there was no strong willingness to buy among the
employees of the plantations in the north for the fear
that they would be pushed out of the purview of the
Plantation Labour Act if they became shareholders
of the new company.
 The employees preferred to be “secured employees
than ‘challenging entrepreneurs’ aiming at long term
benefits.
 offer only 15% stake to the employees of NIPO in the
new company APPL.
 The other private parties like the ILFS, IFC, and GMS
were to hold the major portion of the equities
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 CONCLUSIONS

 On analyzing the reasons for the

failure of this model in the north, one
can conclude that many critical factors
for the functioning of an EBO were
totally missing.
 There was no willingness to buy on the

part of the employees and there was

the absence of a capable employee
team.
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 TATA TEA changes name -

Tata Global Beverages Ltd

12/08/2021 29
 Thanx !

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