The Merger of Tata Tea & TetleyPresented By: Group 3

Tata Tea - TetleyThe first ever leveraged buy-out (LBO), largest cross-border acquisition by any Indian company

Tata Tea's strategy of pushing for aggressive growth and worldwide expansion.

The acquisition of Tetley made Tata Tea the second biggest tea company in the world with the expected combined turnover worth Rs. 2,800 2,900 crore. (The first being Unilever, owner of Brooke Bond and Lipton).

Industry Profile

India is one of the largest producer and consumer of tea in the world, accounting for around 23% of world demandTea is currently the second biggest in beverage category after the carbonated soft drink marketTotal turnover of package tea was approximately Rs 10,000 crores in 2009-10In the packaged tea category, the unorganized sector accounted for over Rs 1500 croreThe labor intensive tea industry directly employs over 1.1 million workers and generates income for another 10 million people approximately. Women constitute 50% of the workforce.

Industry Profile

TATA Tea was set up in 1964 as a joint venture with a UK based James Finlay and Company to develop value added tea.

The operations of Tata tea and its subsidiaries focus on branded product offerings in tea but with a significant presence in plantation activity in India and Sri Lanka.

The Tata tea brand leads market share in terms of value and volume in India and has been accorded the super brand' recognition in the country.

Tata tea also has 100% export oriented unit manufacturing instant tea in the state of Kerela, which is the largest such facility outside the United States.Tata Tea

TetleyIn 1837, two brothers, Edwards and Joseph Tetley started to sell tea and became so famous that they set up as tea merchants. In 1856, in partnership with Joseph Ackland, they set up Joseph Tetley and Co., wholesale tea dealers. Tea was rationed during World War II, it was not until 1953, just after rationing finished, that Tetley launched the tea bag to the UK and it was an immediate success. The rest, as they say, is history. The Tetley Group was created in July 1995, when a group of investors bought what was then the world-wide beverage business from Allied Domecq.On 10th March 2000, The Tetley Group was sold to Tata Tea Limited, one of the worlds largest integrated tea businesses.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 when it bought Tetley for a staggering INR2,135 crore ( 305 million sterling)

Threat of New EntrantsFDIUntapped Rural Markets

Bargaining power of SuppliersLarge number of producersLow switching costRivalry among Existing PlayersApproximately 700 Tea CompaniesUnorganized PlayersIndustry growth at 2%

Threat from SubstitutesCoffeePepsiCokeEnergy Drinks

Bargaining power of BuyersLarge number of buyersProduct differentiationOther Options availableLarge number of consumers

Threat to New EntrantsHigh Cost of InvestmentHigh Labor CostUnorganized Sector

Porters Five Force Analysis

PEST Analysis

Political factorsEconomical factorsSocio Cultural factorsTechnological factorsGovernment PolicyForeign LawsStability of the GovernmentInterest RatesLifestyle ChangesLanguageNew MachineryAdvertising through Internet

Tata Tea IncTata Tea (Gr Britain)SPVEquity 70mnDebt 235mnTetley AcquisitionLegal Services & Bank ChargesTetleys Working Capital requirements 60mn 10mnPrudential Mezzanine Capital Schroder Ventures Rabobank215mn10mn10mnTata Tea Structure of the Deal271mn9mn25mn

DEBT Repayment Structure

ABCDAmount150 Million75 Million30 Million50 MillionLoan TypeLong TermLong TermLong TermRevolvingPurposeFunding AcquisitionFunding AcquisitionCAPEXWC RequirementsYear of Maturity2007200720082007Pay Back MethodSemi Annual Installments2 Installments in 07-082 Installments in 07-08Cessation of CreditInterest rate11%11%11%11%

Before Merger

TATA TEATETLEYTurnover$207million$417 millionoperating profit$36 million$42.6 millionEmployees59740110Tea Estates540Key MarketIndiaBritain, Canada, Australia, US

Merger ImplicationsTata tea acquisitionTetley Pre acquisitionConsolidated Post acquisitionPosition in the value chain40% of turnover came from packed tea bags100% turnover came from packed tea bagsCompany has moved up the value chain 84% of turnover came from packed tea bagsIncreased outsourcingproduced 95% of its tea requirements in houseoutsourced entire requirement from 35 different countries with an estimated procurement of 3 million kgs of tea every weektoday 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 marginsMargins highly correlated with tea cycleMargins inversely correlated to tea cycleMargins hedgedGlobal footprintDomestic operationsUK and USA account for bulk salesGlobal presence

IFAS Before Merger

StrengthsWeightsRatingWeighted ScorePlantation0.1640.64Brand Name0.1520.30Strong Management0.1530.45WeaknessWeak Distribution Channel0.1830.54Lack of Technology available0.1630.48Less or No Global Presence0.2020.40Total12.81

IFAS After Merger

StrengthsWeightsRatingWeighted ScoreMarket Leader0.1540.60Resources & Capabilities0.1330.36Brand Name0.1230.36Experience0.1130.33Strong Management1430.42Presence in 40 Countries0.1540.60WeaknessNo Product differentiation0.1540.60Distribution Network0.0530.15Total13.42

Sales of TATA TEA

PAT of TATA TEA

Profitability Of TATA TEA LTD.YEAR Net Sales Net Income Total Assets ROATotal EquityROE(INR millions) (INR millions)(INR millions)% per year(INR millions)% per year2001674418911614692361%8969899%2002712328160615230053%9679984%2003741038064815402452%9786382%2004770028384514201759%9752486%2005886329502415290862%10489791%20069682010401716974361%11612690%200710544711461127046142%15655573%

Post Merger

Culture Management Objectives of companiesGeographical spreadDifferences in skills

Stock Market Reaction

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