Tata Tea and Tetley

By:
Kiran A-05
Abhay Sakharkar A-10
Aditi Lakhe A-20

Industry Profile

India is world`s largest consumer and second largest producer of tea (26%) after China and
nearly 25 per cent of tea produced worldwide is consumed in India.

The total turnover of the tea industry in India is likely to reach Rs. 33,000 crore by 2015 from
the current level of about Rs. 19,500 crore.

With nearly 6 lakh hectares under tea cultivation, the domestic tea industry is growing at a
compound annual growth rate (CAGR) of about 15 per cent.

Around 35 lakh workers are employed in over 1,500 tea estates across India

Tea production during the current year is likely to stay over 950 million kilograms

Source: http://profit.ndtv.com/news/commodities/article-tea-industry-s-turnover-likely-toreach-rs-33-000-crore-by-2015-assocham-294343

Tata Global Beverages

The company derives nearly 70 per cent of its revenues from tea, 20 per cent from coffee and 5 per cent from water

Tata Tea
Incorporated as Tata Finlay Limited, and commenced business in
1962 1963 (JV)
Tata takes over marketing and production of James Finlay
1976 Bought out entire stake
1983
1991
1993
2000

Tata Tea is born. Company renamed

Enters branded business
JV with Allied Lyons PLC
Tata Tea acquires Tetley Group Limited

Tata Tea merges wholly owned subsidiary, Tata Tetley with the
2005 company.
2010

Tata Global Beverages corporate brand announced

Source: http://www.tataglobalbeverages.com/about-us/our-history

TATA TEA Brand Portfolio

Tata Tea is the largest packaged tea brand in the country with one in three Indian households
having consumed it over the course of last year

Tata Tea Premium

Tata Tea Gold
Tata Tea Gold Darjeeling
Tata Tea Agni
Tata Tea Life
Chakra Gold
Gemini
Kanan Devan
Source: http://www.tataglobalbeverages.com/our-brands/brands-overview/brand-detail?brandid=d85b273d-23d7-421c-96e6be56bae63cae

Tetley

In 1837, Edward 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

In 1989 the round tea bag was launched, latching on to the fashion to drink tea in a mug, rather
than a cup. Next came the Drawstring No drip, no mess tea bag.

On 10th March 2000, The Tetley Group was sold to Tata Tea Limited, one of the worlds largest
integrated tea businesses.

Source: http://www.tataglobalbeverages.com/our-brands/brands-overview/branddetail?brandid=fde0caaa-acb6-4094-ad53-0481902a6d19

TETLEY Brand Portfolio

An astonishing forty-five million cups of Tetley are drunk around the world every day and
enjoyed in 70 countries

Tetley Black tea

Tetley Flavoured Teas

Tetley Green Tea

Tetley Rooibos

Tetley Fruit and Herbal

Tetley Infusions

Tetley Cold

Tetley Chai Latte

Source: http://www.tataglobalbeverages.com/our-brands/brands-overview/brand-detail?brandid=fde0caaa-acb6-4094-ad530481902a6d19

Key players

Source: Euromonitor International Report, 2010

Why The merger (Tetley Story)

Rapidly Shrinking European market

Changing customer preferences

Increased competition from Brooke bond

Tetley's profits fell to 4.98m in March 1999, compared with 35.7m in the
previous year

Increasing debts

Why the Merger (Tata Tea Story)

Tea prices in India falling

Loose, unbranded tea is muscling out the branded players

Stagnating tea consumption in India

Low market Share ( 40% Unilever , 18% Tata ,

Strengthened competition from HLL post Lipton-Brooke bond merger

Need for increase in Global Presence

yr 2000)

Tetley Global Presence

(Yr. 2000)

In the UK and Canada, Tetley already leads the market with 29.4 per cent
and 43.4 per cent shares, respectively

The fastest-growing tea brand In Australia

11.5 per cent of the black tea bag market In the US

Strong distribution network in Middle East, Africa, and Russia.

Recent Entrant into big tea-consuming markets like Pakistan and Bangladesh

Rationale behind the Merger

MINDSHARE:
Tata tea had no marketing expertise, whereas Tetley is the most easily recalled
tea brand in the world, known for its innovation, whether in packaging or
marketing the brand.

NEW PRODUCTS
Tetley would give Tata Tea access to speciality products such as: flavoured teas,
herbal teas, organic teas, and decaffeinated teas.

NEW MARKETS
Tata Tea could help Tetley to launch the brand in India, to enter the premium
segment, as well as in the Middle East and Russia, traditional bastions of Tata Tea.

GLOBAL PRESENCE
Tetley had the second largest branded tea portfolio in the world and a foothold in
35 countries

Synergies

One of Tata tea's strength is its many estates.

Tata tea could help Tetley in his requirement of Indian teas. (More than 8,000,000
kg of Indian teas in a year)

Tetley also bought teas worldwide, blend and package them, which is a very
special skill that Tetley possessed. It sourced teas from various countries and its
expertise in this area was unrivalled.

Tetley gets access to Tata Teas gardens and production base and the latter gets
Tetleys premium brands and global distribution network

Tata gets access to Tetley s Standardized management practices, quality

performance norms and customer focus practices

Tetley could leverage Tatas R&D and expertise in tea cultivation and
manufacturing

Tata could benefit from Tetleys extremely good logistics management skills

Challenges

Acquirer company in this case was smaller than the company it acquired

A cross border acquisition, it was bound to have its fair share of cultural
problems

A heavily ring-fenced, leveraged acquisition, banks had a say in what was

being done

Facts about the Acquisition

The 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

Tata Tea $114(570 Cr) Million Company

Tetley - $415(2250 Cr) Million Company

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)

Structure of the Deal

Leverage Buy-Out

Acquisition of a company through a combination of equity and debt

Jerome Kohlberg, Jr. and Henry Kravis coined the term

Formation of SPV

Stock Purchase Format

Asset Purchase Format

Management Buyout

Future Cash Flows or the Assets of the company as security

Increased Debt Equity ratio

Advantages

Heavy Interest & principal forces

management to improve performance &
operating efficiencies such as

Cost improvisation cost reduction

Divesting non-core business

Investing in technological upgrades

Significant reduction in agency cost

Tax shield

Disadvantages

Financial distress
uncertainties

Increased fixed costs

associated with debt financing
can worn out the effect in
case of downturn in business
cycles

In Leveraged acquisition,
banks have a say in what is
being done

Before Merger

TATA TEA

TETLEY

Turnover

$114million(570 Cr)

$415 million (2250 Cr)

operating profit

$36 million(180 Cr)

$42.6 million(213Cr)

Employees

59740

110

Tea Estates

54

Key Market

India

Britain, Canada, Australia, US

Merger Implications
Merger
Implications

Tata tea acquisition

Position in the
value chain

Tetley Pre acquisition

Consolidated Post acquisition

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 footprint

Domestic
operations

UK and USA account for

bulk sales

Global presence

Sales of Tata Tea

Sales of Tata Tea
2500

Axis Title

2000

1500

1000

500

0
Sales

2000
899

2001
810

2002
750

2003
812

2004
820

2005
981

2006
1058

2007
1297

2008
1415

2009
1540

2010
2090

2011
1966

2012
2222

PAT of Tata Tea

PAT of Tata Tea
450
400
350

Axis Title

300
250
200
150
100
50
0
PAT

2000
124

2001
100

2002
72

Sales figure are in

2003
70

2004
91

2005
129

2006
187

2007
306

2008
312

2009
159

2010
391

2011
180

2012
302

Financials ( Tetley)
TETLEY FINANCIAL AFTER ACQUISITION

(Rs. Crore)
FY2001

FY2002

FY2003

Debt equity ratio

03:01

1.7:1

1.3:1

EBIDT

17981.445

236.712

344.494

Sales

16313.11

1793.74

2008.18

Profit after Tax

-157.788

32.689

64.63

Stock Market Reaction

Stock Market Reaction

Current Scenario Peer Comparison

Post Merger

Tata and Tetley formed several groups tea procurement group, geographic
expansion group, R&D sharing

Legal merger took time as Tetley D/E ratio was too high and it needed to
come down to 1:1

Initial Cultural differences

As of FY12, Tetley brand contributes to 40% of Tata Global Beverages revenue

As of FY12, Tetley is the only brand under Tata Global Beverages stable with
presence across the globe

Post Merger

Acquired other brands like Good Earth, Jemca, Joekels Tea, Vitax, Grand and
Eight O'Clock Coffees

Looking for Organic growth in India

No buying of regional brands in India

Focus on Mid and premium end of the tea category

Luxury brand Tata Veda launched (7000/kg) in 2012

Plans of another acquisition of Global Tea brand in next two years

Starbucks is also selling the Tata Tazo brand of tea, a brand created by the
Tata brand and the Tazo brand of Starbucks