The Merger of Tata Tea & Tetley

Presented By: Group 3

Tata Tea - TetleyTata Tea - Tetley

• The first ever leveraged buy-out (LBO), largest cross-border The first ever leveraged buy-out (LBO), largest cross-border acquisition by any Indian companyacquisition by any Indian company

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

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

Industry ProfileIndustry Profile

• India is one of the largest producer and consumer of tea in the world, accounting for around 23% of world demand

• Tea is currently the second biggest in beverage category after the carbonated soft drink market

• Total turnover of package tea was approximately Rs 10,000 crores in 2009-10

• In the packaged tea category, the unorganized sector accounted for over Rs 1500 crore

• The 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 ProfileIndustry 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

Tetley

• In 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 world’s 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 Entrants•FDI•Untapped Rural Markets

Bargaining power of Suppliers•Large number of producers•Low switching cost

Rivalry among Existing Players•Approximately 700 Tea Companies•Unorganized Players•Industry growth at 2%

Threat from Substitutes•Coffee•Pepsi•Coke•Energy Drinks

Bargaining power of Buyers•Large number of buyers•Product differentiation•Other Options available•Large number of consumers

Threat to New Entrants•High Cost of Investment•High Labor Cost•Unorganized Sector

Porter’s Five Force Analysis

PEST Analysis

Political factors Economical

factors

Socio – Cultural

factors

Technological factors

• Government Policy

• Foreign Laws

• Stability of the

Government

Interest

Rates

• Lifestyle Changes

• Language

New Machinery

Advertising through

Internet

Tata Tea IncTata Tea Inc

Tata Tea (Gr Britain)

SPV

Tata Tea (Gr Britain)

SPV

Equity 70mn Debt 235mn

Tetley Acquisition

Tetley Acquisition

Legal Services & Bank Charges

Legal Services & Bank Charges

Tetley’s Working Capital requirements

Tetley’s Working Capital requirements

60mn

10mnPrudential Mezzanine Capital

Prudential Mezzanine Capital

Schroder Ventures Schroder Ventures

Rabobank

Rabobank215mn

10mn10mn

Tata Tea Tata Tea

Structure of the Deal

271mn9mn

25mn

DEBT Repayment Structure

A B C D

Amount 150 Million 75 Million 30 Million 50 Million

Loan Type Long Term Long Term Long Term Revolving

Purpose Funding Acquisition Funding Acquisition

CAPEX WC Requirements

Year of Maturity 2007 2007 2008 2007

Pay Back Method Semi Annual Installments

2 Installments in 07-08

2 Installments in 07-08

Cessation of Credit

Interest rate 11% 11% 11% 11%

Before Merger

TATA TEA TETLEY

Turnover $207million $417 million

operating profit $36 million $42.6 million

Employees 59740 110

Tea Estates 54 0

Key Market India Britain, Canada, Australia, US

Merger Implications

Tata tea acquisition Tetley Pre acquisition Consolidated Post acquisition

Position in the value chain

40% of turnover came from packed tea bags

100% turnover came from packed tea bags

Company has moved up the value chain 84% of turnover came from packed tea bags

Increased outsourcing

produced 95% of its tea requirements in house

outsourced entire requirement from 35 different countries with an estimated procurement of 3 million kgs of tea every week

today 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 margins

Margins highly correlated with tea cycle

Margins inversely correlated to tea cycle Margins hedged

Global footprintDomestic operations

UK and USA account for bulk sales Global presence

IFAS Before Merger

Strengths Weights Rating Weighted ScorePlantation 0.16 4 0.64

Brand Name 0.15 2 0.30

Strong Management 0.15 3 0.45

WeaknessWeak Distribution Channel 0.18 3 0.54

Lack of Technology available 0.16 3 0.48

Less or No Global Presence 0.20 2 0.40

Total 1 2.81

IFAS After Merger

Strengths Weights Rating Weighted ScoreMarket Leader 0.15 4 0.60

Resources & Capabilities 0.13 3 0.36

Brand Name 0.12 3 0.36

Experience 0.11 3 0.33

Strong Management 14 3 0.42

Presence in 40 Countries 0.15 4 0.60

Weakness

No Product differentiation 0.15 4 0.60

Distribution Network 0.05 3 0.15

Total 1 3.42

Sales of TATA TEA

PAT of TATA TEA

Profitability Of TATA TEA LTD.

YEAR Net Sales Net Income Total Assets ROA Total Equity ROE

  (INR millions) (INR millions) (INR millions) % per year (INR millions)% per year

2001 67441 89116 146923 61% 89698 99%

2002 71232 81606 152300 53% 96799 84%

2003 74103 80648 154024 52% 97863 82%

2004 77002 83845 142017 59% 97524 86%

2005 88632 95024 152908 62% 104897 91%

2006 96820 104017 169743 61% 116126 90%

2007 105447 114611 270461 42% 156555 73%

Post Merger

• Culture

• Management

• Objectives of companies

• Geographical spread

• Differences in skills

Stock Market Reaction