Tata Tetley : Managing the tetley acquisition

Abstract

Tata Tea Limited (TTL), is the second largest tea company in India. It has a significant presence in over 35 countries. Branded teas contribute 88% of the consolidated turnover of the group, with the remaining 12% coming from bulk tea, spices and investment activities. In 2000, TTL had acquired Tetley a major UK tea manufacturer. Analysts had expressed doubts as to whether the deal would create value. Three years after the takeover, things seem to be improving. But there are still concerns as to whether TTL can service the huge debt burden resulting from the deal and whether the synergies projected before the merger can be realised. The case deals with all these aspects along with a detailed picture of how the acquisition actually took place and how the integration is being managed.

Introduction

Tata Tea Limited (TTL), the second largest tea company in India (behind Hindustan Lever Ltd.), had a significant presence in over 35 countries. In 2003, TTL recorded revenue of $711.0 million and a net income of $17.5 million. Branded teas contributed 88% of the consolidated turnover of the group, with the remaining 12% coming from bulk tea, spices and investment activities.

The company owned 51 tea estates in India. TTL had an area of 26,500 hectares under tea cultivation and produced around 60 million kgs of black tea and two million kgs of instant tea annually. It operated nine modern packaging units across the country.

TTL's growth strategy had been multi-pronged - strengthening its business in existing geographies, expanding into new geographies and entering new product categories. TTL's brands were found in the Middle East, West Asia, North Africa, Kazakhstan, the US and Canada. Joint venture companies had been set up in Bangladesh and Pakistan for marketing the Tetley brand.

TTL had six major brands in the Indian market - Tata Tea, Tetley, Agni, Kanan Devan, Chakra Gold and Gemini, which spanned effectively every price point from Premium to Economy.

In 2004, TTL had four major subsidiaries:

1. The Tetley Group, headquartered in UK, owner of one of the best known International Brands of Tea - "Tetley".
2. Tata Coffee Limited, India - a subsidiary that was Asia's largest coffee company.
3. Tata Tea Inc., USA - a subsidiary company with significant interests in instant tea in the world's premier economy.
4. Watawala Plantations Limited, Sri Lanka - a joint venture with significant interest in the tea estates, rubber and oil palm.

The Evolution of India's largest tea company

Incorporated in 1962, TTL was controlled by the House of Tatas, one of India's largest and most respected business groups. The formal coming together of two large business houses, namely the Tatas and James Finlay PLC in early 1960 led to the formation of a fledging company named Tata Finlay Limited. Tata Finlay, incorporated in 1962, envisaged the setting up of two business operations- the Packet tea division at Bangalore and the Instant tea operation at Munnar. James Finlay had the know how for the manufacture of Instant Tea powder - the fully soluble solids of Tea - which was the new and fast growing product in a resurgent American market. TTL commenced operations in 1964 with the manufacture of packaged tea. The instant tea plant started in 1965. Tata Tea acquired the business of James Finlay, UK, and its seven associated tea companies operating in India, with effect from 1976. The technical and financial collaboration with James Finlay expired in 1971.

The Tatas had a 40 per cent stake in Tata Finlay Ltd. Subsequent to the expiry of the collaboration agreement, the overseas company sold off its entire stake to Tata Industries in 1982. After the sale of equity holdings, the name of the company was changed to Tata Tea during 1983.

During 1985, the company set up a tea factory at Chundavurrai tea estate in Kerala to process black tea. In 1984, it floated an investment company, as a 100 per cent owned subsidiary called Bambino Investment & Trading Co Pvt Ltd. In 1986, Tata Tea set up a 100 per cent subsidiary in the US, Tata Tea Inc, after acquiring the instant tea processing facilities of Tritea Inc, USA. During 1990-91, Consolidated Coffee Ltd, along with its two subsidiaries, became subsidiaries of Tata Tea.

 

More...

        Case Code   BSTA029
   Case Length    11 Pages
              Period    2000 - 2003
 Organization     Tata Tea Limited (TTL)
        Pub Date     2004
Teaching Note    Not Available
     Countries    India
      Industry    Beverages

Issues

Tata Tea Limited (TTL); Tetley; Acquisition; Beverage industry; Agni; Chakra; James Finlay; Tea estates; Allied Domecq; Green Ford Tea Factory; Globalisation; Homi Khusrokhan; Krishna Kumar