It was dubbed the acquisition of a global shark by an Indian minnow. Literally, it was. Tata Tea, a mere $114 million company that sold commodity tea, acquired the global brand Tetley for $450 million, three times its size. In many ways, the audacious acquisition of the Summer of 2000 has defined the growth of Tatas and of India Inc.

1. THE TIMES OF
TATAThe Tale of Tata-
Tetley Acquisition
Presented By- Roopali T- 05

2. Once Upon A Time in India
TATA Tea was set up as a JV with a UK based James Finlay and Co1962
Acquired Sterling Tea from James Finlay & Company for Rs. 115 Million
Set up tea factory in Munnar (Kerala) and blending/packaging unit in Bangalore
1975
Renamed itself as Tata Tea Ltd after buying the entire stakes from James Finlay1982

3. Rewinding 100 Years Back- The Tale of Tetley
Established by Joseph and Edward Tetley in 1837 in Yorkshire, England1837
In India, Tata and Tetley Tea entered into a joint venture to produce tea bags
An Iconic brand, Tetley is considered to be the inventor of teabags
1992
At the time of acquisition, Tetley was second largest tea company in the world2000

4. Summer of 2000- The Tale of Acquisition
• One of the most important milestones in the Indian corporate history
• Deal Worth-
 In the Year 2000, Tata Tea acquired the iconic Tetley Brand in a $450 Million deal from
Schroeder Ventures and PPM ventures. At the time of acquisition, Tata Tea’s net worth was
only $114 m.
• Counter Bids-
 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
• It was also the largest cross-border acquisition by an Indian company at that time.
This was also the first ever leveraged buy-out by an Indian Company.

5. Chai Pe Charcha- Why The Deal Made Sense
Readymade access to the European and North American market
Tetley’s technical expertise
Tetley’s premium brands and global distribution network
Tata Tea could become the second largest tea company in the world
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6. Leverage Buyout
• Acquisition of a company through a combination of Equity and Debt
• Formation of SPV
• 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
• Management Buyout
• Future Cash Flows or the Assets of the company as security
• Increased Debt Equity ratio

7. Advantages & Disadvantages of LBO
Advantages
• Heavy Interest & principal forces
management to improve performance
& operating efficiencies
• Cost improvisation – cost reduction
• Divesting non-core business
• Investing in technological upgrades
• Significant reduction in agency cost
• Tax shield
Disadvantages
• Financial distress – uncertainties
• Increased fixed costs associated with
debt financing can worn out the effect
in case of downturn in business cycles
• In leveraged acquisition, banks have a
say in what is being done

8. Structure of The Deal
• Special Purpose Vehicle - Tata
Tea(Great Britain) created
• Purpose was to acquire all the assets
of Tetley
• To ensure that Tata Tea's balance
sheet does not suffer additional
funding costs
• Will be merged into Tata Tea Ltd,
once it has paid its debt obligations

9. Special Purpose Vehicle (SPV)
SPV
TATA TEA
GREAT BRITAIN
(₤70 mn)
TATA TEA INCTATA TEA
(₤10 mn)
(₤15 mn)
GDR Issue
(₤45 mn)
100%
subsidiary

10. Special Purpose Vehicle (SPV)
• The SPV leveraged the ₤70 mn equity 3.36 times to raise a debt of ₤235 mn to
finance the deal
• Entire debt amount comprised 4 tranches A, B, C and D whose tenure varied from
7 to 9.5 years
• The 4 Tranches are: Rabo Bank - ₤185mn, Intermediate Capital Group - ₤30 mn,
Mezzanine - ₤10 mn, Schroders - ₤10 mn
• Where was the money utilized?
 Tetley Acquisition – ₤271 mn
 Legal, Banking and Advisory services – ₤9 mn
 Tetley’s WC requirements - ₤25 mn

11. Structure of The Deal
Tata Tea GB
Tata Tea
Tata Tea Inc
Mezzanine
Schroders
Intermediate Capital Grp
Rado Bank
₤10 mn
₤15 mn
GDR
₤45 mn
₤10 mn
₤10 mn
₤30 mn
₤185 mn
Equity- ₤70 mn Debt- ₤235 mn
Tetley Acquisition Tetley WCLegal & Bank Charges
₤271 mn ₤9 mn ₤25 mn

12. Debt Repayment Structure
A B C D
Amount ₤150 mn ₤75 mn ₤30 mn ₤50 mn
Loan Type Long Term Long Term Long Term Revolving
Purpose Funding
Acquisition
Funding
Acquisition
CAPEX WC
Year of Maturity 2007 2007 2008 2007
Pay Back
Method
Semi Annual
Installments
2 instalments in
07-08
2 instalments in
07-08
Cessation of
Credit
Interest rate 11% 11% 11% 11%

13. Concept of SPV Explained
• Tata Tea (GB) and SPV was created as a part of securitization process
• Securitization is the process of pooling and repackaging of homogenous illiquid
financial assets into marketable securities, that can be sold to investors
• Tata Tea (GB) took over all the properties of Tetley
• Tata Tea originated Assets of Tetley through receivables, leases, any other form of
debts and funded the same ( Originator)
• Portfolio of Tetley assets were then sold to Tata Tea (GB) – SPV for funding the
assets.
Tata Tea ( GB )
Special Purpose Vehicle
Tetley
Obligor
Tata Tea
Originator
InvestorsSale of Assets
Consideration for Assets purchased Subscription of Securities
Issue of Securities

14. Concept of SPV Explained
• Tata Tea (GB) issues debts and purchased the assets from Tata Tea
• Tata Tea (GB) was owned by Tata Tea
• Debts issued by Tata Tea are secured by assets acquired from Tetley (Obligor)
• Tata Tea (GB) subcontracts the administration of assets back to Tata Tea
• Tata Tea (GB) issued tradable securities – tranches to fund the purchase of assets
• Rabo Bank, Mezzanine Capital, Schroder Ventures and Intermediate Capital Group
purchased the securities offered by Tata Tea (GB)
Tata Tea ( GB )
Special Purpose Vehicle
Tetley
Obligor
Tata Tea
Originator
InvestorsSale of Assets
Consideration for Assets purchased Subscription of Securities
Issue of Securities

15. Concept of SPV Explained
• They all invested because they were confident that the securities would be paid in
full and on time from the cash flows that is made available from the asset pool
• Money collected by Tata Tea (GB) was paid to Tata Tea
• As cash flow arises on the assets, Tata Tea (GB) used for repaying funds to the
investors in the securities
• Note- SPV’s are not companies in operations; they do not have any business
except acting as a legal instrumentality. This is necessary to ensure ‘asset-backed’
securities
Tata Tea ( GB )
Special Purpose Vehicle
Tetley
Obligor
Tata Tea
Originator
InvestorsSale of Assets
Consideration for Assets purchased Subscription of Securities
Issue of Securities

16. Post Acquisition
Profitability Of TATA TEA LTD.
Year Net Sales Net Income Total Assets ROA Total Equity ROE
(INR millions) (INR millions) (INR millions) % per year (INR millions) % per year
2001 67441 89116 146923 61% 89698 99%
2002 71232 81606 152300 53% 96799 84%
2003 74103 80648 154024 52% 97863 82%
2004 77002 83845 142017 59% 97524 86%
2005 88632 95024 152908 62% 104897 91%
2006 96820 104017 169743 61% 116126 90%
2007 105447 114611 270461 42% 156555 73%

17. Post Acquisition
Merger
Implications
Tata Tea Pre
Acquisition
Tetley Pre Acquisition Consolidated Post acquisition
Position in the
value chain
40% of turnover
came from packed
tea bags
100% turnover came
from packed tea bags
Company has moved up the value
chain 84% of turnover came from
packed tea bags
Increased
outsourcing
Produced 95% of its
tea requirements in
house
Outsourced entire
requirement from 35
different countries with
an estimated
procurement of 3 million
kgs of tea every week
Today 70% of TATA Tea
requirement is outsources from 20
different countries thus reducing
the risk associated with
fluctuations in production arising
out of various factors.
Predictable
margins
Margins highly
correlated with tea
cycle
Margins inversely
correlated to tea cycle
Margins hedged
Global footprint Domestic operations
UK and USA account for
bulk sales
Global presence

18. Post Acquisition- Reaction of Stock Market

19. Post Acquisition- Integration
• A executive board fumed with 6 people from both companies to plan and devise the
integration plans
• Simultaneously a board of non-executive members were formed who were neutral
with the objective of introducing Tetley in India
• Also as last and final measure individual committees were formed to look at scope
for integration in different areas like Commercial business, Supply chain, IT team etc.
• However the synergies of the companies were not so strong as planned
• For most part it was quite impossible to fuse the working of Tata Tea and Tetley
together as they both had different structures. Thus the following happened-

20. Post Acquisition- Integration
• Tetley focused on producing tea the packaging and selling, whereas Tata focused on
producing tea in own plantations and then selling
• Tetley was a global brand and hence had more standardized product mix, which
focused on quality, whereas Tata was an Asian brand and as per customer
preference focused more on making product as per local taste
• Hence apart from exchange of R&D and technological know – how, and help to grow
in each other market both the companies could not be integrated to achieve better
results.
• Thus the CEO’s of both the companies felt that allowing independent operation for
both the companies along with a kind of Co-integration alliance was best

21. Thank You!