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Tata Tea & Tetley acquisition

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The presentation is about acquisition of Tetley, UK by Tata Tea, India in the year 2000 for a value of 271 million pound. It was one of the largest overseas acquisitions by an Indian company at that time. Tata Group is one of India's largest business conglomerates comprising more than 100 companies including Tata Global Beverages. The acquisition has helped Tata's business ambitions to hold a global tea company. As India reduces import duties on tea, Tata Global Beverages has offset its reduced share of the domestic market by gains in Europe and North America.

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Tata Tea & Tetley acquisition

  1. 1. 1 The Leverage Buy – out Deal of Tata & Tetley
  2. 2. Introduction  In the summer of 2000, Indian corporate fraternity witnessed path breaking achievement  New chapter in Indian corporate history  Tata Tea acquired the UK heavyweight brand “Tetley” for ₤271 million (USD 450 million)
  3. 3. Introduction  Acquisition made Tata Tea 2nd biggest tea company in the world  Tata Tea went through a metamorphosis  Mr. Ratan Tata said, “It is a great signal for global industry by Indian Industry. It is a momentous occasion as an Indian company has been able to acquire a brand and an overseas company”
  4. 4. Introduction  First ever leveraged buy-out by an Indian company  Price differences  Financing mechanism of LBO
  5. 5. The Tale of Tata Tea  Tata Tea was incorporated in 1962 as “Tata Finlay Ltd”  Commenced business in 1963  Tata Tea set up factory in Munnar in collaboration with Tata Finlay & company  Expanded its business  In 1975, acquired Sterling Tea from James Finlay & company for Rs. 115 million  Bought stake in James Finlay & Company in joint venture  In 1983, the company was renamed “Tata Tea Ltd”
  6. 6. The Tale of Tata Tea 1980’s Fluctuation in commodity prices May 1984 Launched Kanan Devan tea & setup up of R&D centre 1986 Launch of Tata Tea Dust in Maharashtra 1988 Launch of Tata Tea Leaf in Madhya Pradesh
  7. 7. The Tale of Tata Tea 1995 Tata Tea unveiled a massive up gradation program Bid successfully for a group of 20 tea estates in Sri Lanka 1996 Tata Tea felt the need to develop into a truly national brand 1998 Launched Tata Tea premium 1999 Re-launched Kanan Devan with fresh advertisement campaign
  8. 8. The Tale of Tata Tea  Subsidiary of Tata Tea Ltd was set up in Florida  Launched “Snapple”, a ready to drink ice tea  Joint venture with Hitachi of Japan – Tata Hitachi Sales Ltd  Serving as an agent for Nippon Yusen Kaisha(NYK)
  9. 9. De-mystifying LBO  “Acquisition of a company, financed by the borrowing of all the stocks of all the stocks or assets of a public limited company by a small group of investors”  Sponsored by buy-out specialist & investment bankers  50% or more of the purchase price  Stock purchase format   Target shareholders sell their stock to the buying group Asset purchase format  Issues liquidating dividend to the shareholders or becomes an investment company  Proceeds are distributed to shareholders  Management buy-out
  10. 10. Structure of Tata Tea’s LBO Deal 10
  11. 11. De-mystifying LBO  LBO has inherent advantage over cash transactions  Special purpose vehicle  Option to merge with the SPV  Low risk affair
  12. 12. De-mystifying LBO  Reserves of Tata Tea were Rs. 4 billion at the time of the deal  Precluding the possibility of making the acquisition  LBO option was accepted  The debt portion didn’t affected the balance sheet  Liability was limited to Tata Tea’s equity contribution to the SPV

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