The Leveraged Buy Out Deal of Tata & Tetley

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Case Details:

Case Code : FINC001
Case Length : 7 Pages
Period : 2000
Pub. Date : 2001
Teaching Note : Available
Organization : Tata Tea Tetley
Industry : Food, Beverages & Tobacco
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Tale of Tata Tea

Tata Tea was incorporated in 1962 as Tata Finlay Limited, and commenced business in 1963. The company, in collaboration with Tata Finlay & Company, Glasgow, UK, initially set up an instant tea factory at Munnar (Kerala) and a blending/packaging unit in Bangalore.

Over the years, the company expanded its operations and also acquired tea plantations. In 1976, the company acquired Sterling Tea companies from James Finlay & Company for Rs 115 million, using Rs 19.8 million of equity and Rs. 95.2 million of unsecured loans at 5% per annum interest. In 1982, Tata Industries Limited bought out the entire stake of James Finlay & Company in the joint venture, Tata Finlay Ltd. In 1983, the company was renamed Tata Tea Limited. In the mid 1980s, to offset the erratic fluctuations in commodity prices, Tata Tea felt it necessary to enter the branded tea market. In May 1984, the company revolutionized the value-added tea market in India by launching Kanan Devan tea³ in polypack.

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In 1984, the company set up a research and development center at Munnar, Kerala. In 1986, it launched Tata Tea Dust in Maharashtra. In 1988, the Tata Tea Leaf was launched in Madhya Pradesh.

In 1989, Tata Tea bought a 52% stake in Karnataka-based Consolidated Coffee Limited-the largest coffee plantation in Asia, in order to expand its coffee business. In 1991, Tata Tea formed a joint venture with Tetley International, UK, to market its branded tea abroad. In 1992, Tata Tea took a 9.5% stake in Asian Coffee-the Hyderabad based 100% export oriented unit known for its instant coffee, through an open offer. This offer was the first of its kind in Indian corporate history. Later, in 1994, Tata Tea increased its stake in Asian Coffee to 64.5% through another open offer. This helped it to consolidate its position in the coffee industry. In 1995, Tata Tea unveiled a massive physical upgradation program at a cost of Rs 1.6 billion...

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3] Brand of Tata Tea that was very popular especially in South Indian markets.The Kanan Devan variety went back over a century and was derived from the tea growing in the Kanan Devan Hills (Tata Tea had tea estates on these hills) located in the eastern part of central Kerala and adjoining parts of Tamil Nadu. The Kanan Devan name was used for decades for selling bulk teas originating from these hills, and this led to a loose tea franchise in southern India, particularly Kerala. With the growth in the branded tea segment, Tata Tea leveraged on the name Kanan Devan to convert this loose tea franchise into a brand so as to move up the value chain.