The Merger of Tata Tea - Tetley

The Merger of Tata Tea - Tetley
The first ever leveraged buy-out (LBO), largest crossbuycrossborder acquisition by any Indian company

. (The first being Unilever. 2. owner of Brooke Bond and Lipton).The Merger of Tata Tea .Tata Tea's strategy of pushing for aggressive growth and worldwide expansion.900 crore.800 ± 2.Tetley Largest cross-border acquisition that marked the crossculmination of Indian company¶s . The acquisition of Tetley made Tata Tea the second biggest tea company in the world with the expected combined turnover worth Rs.

Acquisition price paid to Tetley was 271 mn pounds (US $450 m) representing more than four times the net worth of Tata tea at US $ 114 mn.Tetley The size of the deal was big. .The Merger of Tata Tea . and was the first ever leveraged buy-out (LBO) by any Indian company ± buyTata Tea allowing to minimize it¶s cash outlay in making the deal.

Tetley Tata Tea Limited (TTL). It has a significant presence in over 35 countries. 12% comes from bulk tea.The Merger of Tata Tea . is the second largest tea company in India. Branded teas contribute 88% of the consolidated turnover of the group. spices and investment activities .

000 hectares under tea cultivation. Produces around 40 million kg of Black Tea annually.Tetley 18. Tetley. Chakra Gold and Gemini . Devan.The Merger of Tata Tea . Kanan Devan. Five major brands in the Indian market ± Tata Tea.

Tetley Tata Tea's distribution network in the country with 38 C&F agents and 2500 stockists caters to over 1. . "Super Brand" recognition in the country with market share in terms of value and volume in India.7 million retail outlets.The Merger of Tata Tea .

USA and a number of European countries.Tetley Tetley world¶s second largest branded tea company. packs and distributes tea products (mainly tea bags) in the UK. . Australia. Tetley blends.The Merger of Tata Tea . Canada.

The Merger of Tata Tea . and Tetley products are on sale in over 40 countries .000 crore in 1999 with growth rate of 15% over 1998 Tetley is the second largest tea bag brand in the world.Tetley Tetley recorded turnover worth more than 2.

Tata Tea ± Tetley Synergies The deal offer significant synergies ± Tetley gets access to Tata Tea¶s gardens and production base and the latter gets Tetley¶s premium brands and global distribution network. Vertical Integration .

.Tata Tea ± Tetley Synergies The Tetley acquisition catapulted Tata Tea from the second largest branded tea marketer in India to the second largest tea multinational in the world with combined sales of over US$600m.

Tetley¶s technical expertise should enable Tata Tea to upgrade its product portfolio and thus improve its competitive position. In such a scenario. .Tata Tea ± Tetley Synergies Tea prices are on a structural downturn with supply exceeding demand.

and distribution. ±Tetley is strong in tea bags. Working together to . . marketing. ± Capture revenue synergies revenue synergy is accomplished by utilizing the complimentary strengths of both organizations in marketing . as well as manpower .Tata Tea ± Tetley Synergies Integration of branding.Capture cost synergies. ±Tata Tea has been successful in the marketing of packet teas.

Tata Tea ± Tetley Synergies Jointly developing the markets where one or the other company has so far worked singly thereby. Organic teas and decaffeinated teas. flavored teas. leveraging the Tetley international brand name. Bringing Tetley brand at the premium end of the Indian market. . Herbal teas.

Tata Tea GB.the process Tetley was acquired for £271m (equity: £70m. junior loan stock subscribed by institutional investors (including the vendor institutions Mezzanine Finance. subscribed by Tata tea.) and senior debt facilities arranged and underwritten by Rabobank International. . arranged by Intermediate Capital Group Plc. The purchase of Tetley was funded by a combination of equity. debt: £201m) by a special purpose vehicle.Merger .

USA -.Merger .the process TATA Tea (Great Britain). will be merged into Tata Tea as soon as it has repaid it¶s debt obligations. The acquisition was financed with $70 million in equity. of which $60 million was brought in by Tata Tea and $10 million by Tata Tea. . the special purpose vehicle was created for the Tetley acquisition.a 100 per cent subsidiary of Tata Tea.

Merger .36 times to raise a debt of 235 mn pounds .the process Take over deal comprises of ± 271mn pounds as Takeover cost ± 9mn pounds as legal & banking charges ± 25mn pounds as WC & additional funding The SPV leveraged the 70 mn pounds equity 3.

Amount raised via tranches A and B were used for funding the acquisition whereas C and D tranches were used capital expenditure & WC requirements. with a coupon rate of around 11% which was 424 basis points above LIBOR.the process The entire debt amount of 235mn pounds comprises of four Tranches bearing interest @ 11%. divided into four tranches ± A.Merger . The tenure varied from 7 years to 9. . B. C and D.5 years.

Structure of the Tata Tea¶s LBO Deal Tata Tea Inc £ 60mn £ 10mn Tata Tea Rabobank £ 185mn Prudential Mezzanine Capital £ 10mn Schroder Ventures Intermediate Capital Group Tata Tea (Gr Britain) SPV £ 30mn £ 10mn Equity £ 70mn Debt £ 235mn A fine blend of debt and equity Tetley Acquisition Legal Services & Bank Charges Tetley¶s Working Capital requirements .

Debt Repayment Structure A Amount Loan Type Purpose Year of maturity Pay-back method 110mn pounds Long-term Funding Acquisition 2007 Semi-annual installments B 25mn pounds Long-term Funding Acquisition 2007 2 installments in 07-08 C 10mn pounds Long-term CAPEX 2008 2 installments in 07-08 D 20mn pounds Revolving WC exp 2007 Cessation of credit .

the acquiring company could float a Special Purpose vehicle (SPV) which was a 100% subsidiary of the acquirer with a minimum equity capital.Concept of SPV .explained In an LBO. . The SPV(TATA TEA GB) leveraged this equity to gear up significantly higher debt to buyout the target company.

The target company's assets were pledged with the lending institution and once the debt was redeemed. . the acquiring company had the option to merge with the SPV.explained This debt was paid off by the SPV(TATA TEA GB) through the target company's own cash flows.Concept of SPV .

in an LBO. The target company's assets were pledged with the lending institution and once the debt was redeemed. The debt was paid off by the SPV through the target company's own cash flows. Thus the liability of the acquiring company was limited to its equity holding in the SPV. . Thus. the acquiring company had the option to merge with the SPV. the takeover was financed by the target company¶s future internal accruals. The LBO seemed to have inherent advantages over cash transactions.Rationale This mechanism allowed the acquirer (Tata Tea) to minimise its cash outlay in making the purchase.

neither could it afford the debt burden associated with large borrowings. its reserves at the time of the deal were just around Rs 4 billion. that although Tata tea retained full control over the venture. . The deal was so structured.In the case of Tata Tea. Hence it opted for a SPV. precluding the possibility of making such a gigantic acquisition on its own. The liability of acquisition was limited to Tata Tea's equity contribution to the SPV. the debt portion of the deal did not affect its balance sheet.

Thanx ! .

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