Tata Tetley : Managing the tetley acquisition (Page 2)

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.

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The Evolution of India's largest tea company contd...


"In 1993, Tata Tea set up Tata Tetley Ltd, a joint venture company with the Lyons Tetley group of UK, in Cochin. In March 2000, Tata Tea acquired the worldwide tea business of UK based tea major Tetley Tea.

It also had a joint venture arrangement with the Tetley Group with a production unit in Kochi, India, supplying tea bags to the Russian and Polish markets. In addition, the company had formed a joint venture in Sri Lanka through which it had acquired a controlling interest in the Watawala Plantations Ltd., with tea, rubber and oil palm estates.

The Tetley acquisition

In April 1999, TTL's top management assembled in Mumbai to listen to a presentation on a Kenyan plantation company by UK-based Arthur Andersen.

TTL had long wanted to buy a plantation in Africa. In 1998, executive director M.H. Ashraf had visited several African countries, including Uganda, Tanzania and Kenya. Andersen had finally identified the Kenyan company in which an expatriate had a majority stake. Around this time, Andersen announced that Tetley, the UK based tea company was up for sale. TTL decided to do due diligence and hired Andersen to broker the deal.

In 2000, TTL acquired the shareholding of the Tetley group in the UK, through a new subsidiary company, Tata Tea (GB). Tetley was the second largest branded tea company in the world and was the market leader in tea products in Canada, the UK and a number of other European countries.

TTL reported a turnover of Rs 901 crore and post-tax profits of Rs 129 crore in 1998-99 and Tetley clocked a worldwide turnover of £320 million (Rs 2,240 crore) and profits of about £26 million (Rs 182 crore) in 1998. TTL realized that if it clinched the deal, it would become a Rs 3,141 crore company. TTL bid £260-270 million (Rs 1,820-1,890 crore, minus its US-based coffee operations, valued at £30-40 million) -- making this one of the biggest ever overseas deals involving an Indian company........

        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