Professional Documents
Culture Documents
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.
Tata Tea – Tetley Synergies
Tea.
As cash flow arises on the assets, Tata Tea (GB) used
Investors
Securitization – the process
Tetley Ancillary Service
Obligor Provider
Sale of Assets Issue of Securities
internal accruals,"
Leverage Buy-Out?
Leverage buyout (LBO) refers to financing
mechanism for purchasing of a company by a
small group of investors using a high
percentage of debt financing
Leveraged Buyout or LBO investing, involves
the provision of leveraged capital (i.e., a mixture
of debt and equity, with an emphasis on debt)
and business development assistance to enable
the restructuring of existing businesses.
Leverage Buy-Out?
Each LBO mechanism is unique – Capital
Structure.
Leveraged buyout uses Financial Leverage to
complete the acquisition of Target Company.
In a LBO, equity holders often receive very high
returns because the debt holders are locked
with fixed return, while the equity holders
receive all the benefits from any capital gains.
Leverage finance…
Takeover?
Leveraged
recapitalization?
Leverage Buy Out – the sequence
Company gets bloated or slack IPO or sale of
and stock price falls company
LBO completed
Restructuring
Efficiencies
Divestitures
Financial
Stage 1: Pre-LBO
Stage 2: LBO
financing
Stage 3: LBO
refinancing
Stage 4: Debt
paydown
COST
OF
CAPITAL
DEBT
RATIO
Leverage Buy-Out?
Value created by LBO are exclusively for
shareholders of the restructured firm and for
the specialist engage in the LBO operation.
LBO refers to Wealth transfer mechanism
PBT
2001 2002 %
1,873mn 2,144mn 14.16
Sources of strength from LBO
Tata Tea – Tetley - Merger
Margins – operating efficiencies
GPM as %
2001 2002 %
21.5 21.5 -
NPM as %
2001 2002 %
11.1 11.3 1.8
Sources of strength from LBO
Tata Tea – Tetley - Merger
Margins – operating efficiencies
Capital expenditures
Depreciation
2001 2002 %
225mn 251mn 11.55
Interest
2001 2002 %
338mn 333mn 1.47
Sources of strength from LBO
Tata Tea – Tetley - Merger
Net Worth
2001 2002 %
6,238mn 7,140mn 14.45
EPS
2001 2002 %
29.83 34.11 14.34
Post -Merger performance
Payments
Free Cash flows -- 1,39,375 1,49,828 1,61,065 1,73,145 51,587
- Free Cash flow as calculated earlier from rental income after expenses & interest.
Closing Bal. 6,75,000 5,35,625 3,85,797 2,24,732 51,587 0
Interest -- 50,625 40,172 28,935 16,855 3,869
- Closing bal = (opening bal – free cash flow )
Interest is calculated on closing bal.
Ratio
Debt 90% 71.4% 51.4% 30% 6.9% 0%
Equity 10% 28.6% 48.6% 70% 93.1% 100%
LBO - inferences
Thus it is evident from Equity ownership as %
of total capitalization increases from 10% to
100%.
We can conclude that advantage of leverage in