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| March 13, 2000 | ||
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| TATA-TETLEY
MERGER Heady Blend Tata Tea's snapping up of heavyweight Tetley is a prelude to its ambitious global forays By Paran Balakrishnan in London with Robin Abreu
The pathbreaking acquisition has, at one stroke, turned Tata-Tetley into the world's second-biggest tea conglomerate with sales in 44 countries. Says Ratan Tata, chairman, Tata Group: "In a world where brand strength is crucial, the acquisition of Tetley will provide Tata Tea with a global opportunity." Adds Tata Tea Vice-Chairman R.K. Krishna Kumar: "By acquiring Tetley we will be propelled into the No. 2 position which we can leverage to our advantage." Tata Tea is already limbering for the transcontinental battle. On March 10, the deal will be completed and the Indian company will take control of Tetley through a new holding company called Tata Tea, Great Britain. The deal will also have an instant effect on the global tea industry. Tetley is a major force and it buys over two million pounds of tea every week at the world's major auctions centres. Tetley tea is brewed from a melange which comes from 35 different countries and from 10,000 tea estates around the globe. The Tata Group has made it clear that this is a friendly takeover. What is about to change though is the scale of operations. Soon after March 10, the top executives of the newly merged conglomerate will put together a new blueprint for global growth. The first thrust is likely to be towards North America where Tetley has already been pouring more cups of tea for the last one year. The next stage will be to take the Tata-Tetley brandname to every tea drinking nation in the world. Tata Tea will use the Tetley brand name to push its packet teas in the developing world. Tata-Tetley will also attempt to stage a comeback in countries like Russia which is one of the world's biggest tea drinking nations. Says Kumar: "We are thinking of filling out the world with Tetley brands." There won't be much time for a celebratory cuppa if the Tatas want to challenge Unilever, which is a globe-straddling consumer-products giant. Unilever owns blockbuster brands like Brooke Bond and Lipton. By comparison, Tetley is the world's second-largest brand after Lipton though the biggest producer of tea bags in the UK. It is the most popular tea in Canada where it has a 38 per cent share of the market and it comes second in Australia with 18 per cent. That isn't all. Back in 1953, Tetley's research scientists changed the dynamics of the industry by inventing the first rudimentary tea bags. Tetley also produces flavoured teas, herbal teas and iced tea. Tata Tea also has a rich dowry which it brings to the new union. It owns 74 tea gardens and it produced around 62 million kg of tea last year. Even before the merger, Tata Tea was the world's largest integrated tea producer. Of course, it was far behind Unilever which sold around 175 million kg of tea last year. There are other domestic benefits for Tata Tea which can't be ignored. The Indian company has been worried that it would be outflanked in its home market by powerful brands. Says Kumar: "The Indian market will be open to imports in a few years and we have to be ready for that invasion." Adds Atul Rastogi, former analyst with UTI Securities: "Tata Tea's products are in the medium range. What it needed was a range of premium tea brands which it got with Tetley." The arguments in favour of the merger are so strong that some analysts are now asking why the companies did not tie the knot before. For a start the two companies have been working together since 1992 and they've been cosying up to each other during that time. The Tatas first came courting back in early 1995 when the British conglomerate Allied Domecq decided to sell off its tea interests and concentrate wholly on its liquor division. Initially, a host of bidders appeared to be interested including Swiss giant Nestle and US-based Sara Lee Corporation. The Tatas, to show how interested they were, appointed J.P. Morgan as its financial adviser and made a bid slightly below $318 million. While Tata Tea was struggling to convince Allied Domecq about its ability to pay, a management team led by senior Tetley managers Leon Allen and Roger Price stepped into the breach. Allen and Price were backed by Schroder Ventures and a second firm PPM Ventures which is the venture capital arm of the giant Prudential Corporation. The Domecq team offered a cash down payment of $302 million. But Domecq wasn't keen. In early 1999 Schroder and PPM Ventures turned to Tata Tea once again. Kumar was approached by Arthur Anderson about an acquisition of a tea estate in Africa. Arthur Anderson's executives, however, startled the Tata brass by asking whether they were still interested in buying Tetley. The deal does have its unusual aspects. There is a David and Goliath angle to the entire transaction. Tata Tea is by far the smaller company and it has a turnover of Rs 884.71 crore and profit after tax of Rs 102.16 crore for 1998-99. That is small compared to Tetley which is a privately held company. Analysts reckon that Tetley racked up an annual turnover of Rs 2,240 crore and profits of about Rs 182 crore in 1998. That was part of the problem and the reason the deal took so long to conclude. Last week Tata Tea raised $60 million from a highly successful GDR issue to part-fund the deal. Also, it has worked with Rabo Bank to raise about $341.85 million in debt. The new merger opens enormous possibilities for Tata. The group may give its products a hyphenated name like Tata-Tetley. Also, the merger could give the company a fillip in its attempt to make a foray into edible oils and atta. Says Krishna Kumar: "We want to emerge as a fast moving consumer goods (FMCG) major and Tetley is the beginning of the process." But Tata Tea must prepare for many struggles ahead now that it has won the first battle.
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A
battle is brewing in the global tea industry. In one corner is Unilever, the
Mike Tyson of the tea industry with a powerful punch that can reach out to
all corners of the globe. In the other corner is a surprise new contender
that has just graduated into the heavyweight category: Tata Tea. Can Tata
Tea pull it off and does it have the strength to go global? After 10 months
of intense negotiations, it has closed a $430.9 million (Rs 1,853 crore)
deal to take over Tetley Group, the second-largest tea maker in Britain and
one of the most famous names in the industry. But now the real fight will
begin.