Tata Tea & Tetley acquisition
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The Leverage Buy – out Deal of Tata & Tetley 1
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The presentation is about acquisition of Tetley, UK by Tata Tea, India in the year 2000 for a value of 271 million pound. It was one of the largest overseas acquisitions by an Indian company at that time. Tata Group is one of India's largest business conglomerates comprising more than 100 companies including Tata Global Beverages. The acquisition has helped Tata's business ambitions to hold a global tea company. As India reduces import duties on tea, Tata Global Beverages has offset its reduced share of the domestic market by gains in Europe and North America.
Transcript of Tata Tea & Tetley acquisition
1
The Leverage Buy – out Deal of
Tata & Tetley
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)
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”
Introduction
First ever leveraged buy-out by an Indian company
Price differences
Financing mechanism of LBO
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”
The Tale of Tata Tea
The Tale of Tata Tea
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)
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
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Structure of Tata Tea’s LBO Deal
De-mystifying LBO
LBO has inherent advantage over cash transactions
Special purpose vehicle
Option to merge with the SPV
Low risk affair
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
Thank You
