The Merger of Tata Tea &Tetley Presented By: Group 3
Tata Tea - Tetley• The first ever leveraged buy-out (LBO), largest cross-border acquisition by any Indian company• Tata Teas strategy of pushing for aggressive growth and worldwide expansion.• 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).
Industry Profile• India is one of the largest producer and consumer of tea in the world, accounting for around 23% of world demand• Tea is currently the second biggest in beverage category after the carbonated soft drink market• Total turnover of package tea was approximately Rs 10,000 crores in 2009-10• In the packaged tea category, the unorganized sector accounted for over Rs 1500 crore• The labor intensive tea industry directly employs over 1.1 million workers and generates income for another 10 million people approximately. Women constitute 50% of the workforce.
Tata Tea• TATA Tea was set up in 1964 as a joint venture with a UK based James Finlay and Company to develop value added tea.• 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 Kerela, which is the largest such facility outside the United States.
Tetley• 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 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.• After a long drawn out battle first with Schroder Ventures, followed by a bitter retreat in 1995, and then with Sara Lee, Tata tea finally tasted victory on March 10, 2000 when it bought Tetley for a staggering INR2,135 crore ( 305 million sterling)
Porter’s Five ForceAnalysis Threat of New Entrants Threat to New Entrants •FDI •High Cost of Investment •Untapped Rural Markets •High Labor Cost •Unorganized Sector Rivalry among Existing Players Threat from SubstitutesBargaining power of •Approximately 700 Tea Companies •CoffeeSuppliers •Unorganized Players •Pepsi•Large number of •Industry growth at 2% •Cokeproducers •Energy Drinks•Low switching cost Bargaining power of Buyers •Large number of buyers •Product differentiation •Other Options available •Large number of consumers
PEST AnalysisPolitical factors Economical Socio – Cultural Technological factors factors factors• Government Policy Interest • Lifestyle Changes New Machinery Rates Advertising through• Foreign Laws • Language Internet• Stability of the Government
Structure of the Deal TataTata Tea TeaInc Raboban k 60mn 215mn 10mn Tata Tea (Gr Britain) Prudential Schroder SPV Mezzanin Ventures e Capital 10mn 10mn Equity 70mn Debt 235mn Tetley Legal Services Tetley’s Working Acquisition & Bank Capital requirements Charges 271mn 25mn 9mn
DEBT Repayment Structure A B C D Amount 150 Million 75 Million 30 Million 50 Million Loan Type Long Term Long Term Long Term Revolving Purpose Funding Acquisition Funding CAPEX WC Requirements Acquisition Year of Maturity 2007 2007 2008 2007Pay Back Method Semi Annual 2 Installments in 2 Installments in Cessation of Installments 07-08 07-08 Credit Interest rate 11% 11% 11% 11%
Before Merger TATA TEA TETLEY Turnover $207million $417 million operating profit $36 million $42.6 million Employees 59740 110 Tea Estates 54 0 Key Market India Britain, Canada, Australia, US
Merger Tata teaImplications acquisition Tetley Pre acquisition Consolidated Post acquisition 40% of turnover Company has moved up the valuePosition in the came from packed 100% turnover came chain 84% of turnover came fromvalue chain tea bags from packed tea bags packed tea bags outsourced entire requirement from 35 today 70% of TATA Tea requirement is produced 95% of different countries with outsources from 20 different countries its tea an estimated thus reducing the risk associated withIncreased requirements in procurement of 3 million fluctuations in production arising out ofoutsourcing house kgs of tea every week various factors. Margins highlyPredictable correlated with tea Margins inverselymargins cycle correlated to tea cycle Margins hedged Domestic UK and USA account forGlobal footprint operations bulk sales Global presence
IFAS Before MergerStrengths Weights Rating Weighted ScorePlantation 0.16 4 0.64Brand Name 0.15 2 0.30Strong Management 0.15 3 0.45WeaknessWeak Distribution Channel 0.18 3 0.54Lack of Technology available 0.16 3 0.48Less or No Global Presence 0.20 2 0.40Total 1 2.81