In 2000, Tata Tea made a landmark move by acquiring the UK brand Tetley for ₤271 million, marking the first leveraged buy-out (LBO) by an Indian company and positioning Tata Tea as the world's second-largest tea producer. The acquisition showcased Tata Tea's transformation and ambition on the global stage, backed by a strategic financial structure that protected its balance sheet. The document details Tata Tea's evolution and prior successes leading up to the LBO, emphasizing the significance of this deal in Indian corporate history.

1. 1
The Leverage Buy – out
Deal of
Tata & Tetley

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. 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. Introduction

First ever leveraged buy-out by an Indian company

Price differences

Financing mechanism of LBO

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. 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. 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. 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. 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. Structure of Tata Tea’s LBO Deal
10

11. De-mystifying LBO

LBO has inherent advantage over cash transactions

Special purpose vehicle

Option to merge with the SPV

Low risk affair

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