Tata Tea to acquire Tetley

Tata Tea is all set to acquire UK-based tea major, the Tetley Group, for a consideration of 270 million. This is likely to be the largest ever overseas acquisition by an Indian company, and the Tatas’ first major foreign takeover. Management consulting firm Arthur Andersen has structured the deal.

What’s left to be settled is the funding. Of the 270 million needed, Tata Tea is raising and equivalent of 70 million locally and will float a 100 per cent special purpose vehicle, which may be incorporated in the UK, through which Tetley will be acquired. The Indian tea company is talking to leading European and American banks to raise 200 million.

There are unconfirmed reports that the Tatas are considering an interesting method to fund the acquisition – it may get Tetley itself to provide the wherewithal to complete the acquisition. Tetley is a low-debt company and is capable of higher leveraging of its balance sheet. After the deal is successfully completed, the Tatas propose to take on Tetley’s loan and continue with the repayment.

The deal has to be approved by the finance ministry in India because it involves the remittance of 70 million. Under current Reserve Bank of India guidelines, automatic approval is allowed for overseas investments of up to $15million (10 million).

Tata Tea, a Rs 885-crore company, has a joint venture with Tetley in India, called Tata Tetley, which is a 100 per cent export-oriented unit located in Cochin. This venture makes tea bags and packaged tea for the Middle East and Polish markets.

Tetley is known for its tea bags and black tea made from leaves that are fully oxidised, its orange pekoe, dripless Tetley tea bags with a wide range of exotic flavours such as lemon Chamomile, Orange Peach, Peppermint Summer and black drawstring tea like English Breakfast and British Blend decaffeinated.

Tetley is owned by a group of banks and institutional investors, including venture capital major Schroder Ventures, which exercise management control. Tetley is a leading brand in the UK, US and Canada. Globally the Tetley group purchases tea from more than 35 countries and 10,000 tea estates.