Acquisition of Tetley by Tata

Submitted by: Anushri Mayekar – B023

Acquisition of Tetley by Tata

Merger:
The deal was a rare example of an Indian company taking over a larger British group.

The merger was undertaken on two counts

For one, Tata Tea had their global ambitions well in place, as they wanted to take Tata Tea to the global
markets. The second reason, from Tata’s side was the fact that they wanted to understand the global
distribution system.

The Merger was being seen as something beneficial for both the parties given the synergies that were
expected.

Process:
 Tetley was acquired for £271m (equity: £70m, debt: £201m) by a special purpose vehicle, Tata
Tea GB. The purchase of Tetley was funded by a combination of equity, subscribed by Tata tea,
junior loan stock subscribed by institutional investors (including the vendor institutions
Mezzanine Finance, arranged by Intermediate Capital Group Plc.) and senior debt facilities
arranged and underwritten by Rabobank International.
 TATA Tea (Great Britain), the special purpose vehicle was created for the Tetley acquisition, will
be merged into Tata Tea as soon as it has repaid its debt obligations. The acquisition was
financed with $70 million in equity, of which $60 million was brought in by Tata Tea and $10
million by Tata Tea, USA -- a 100 per cent subsidiary of Tata Tea.
 Takeover deal comprises of – 271mn pounds as Takeover cost – 9mn pounds as legal & banking
charges – 25mn pounds as WC & additional funding. The SPV leveraged the 70 mn pounds
equity 3.36 times to raise a debt of 235 mn pounds
 The entire debt amount of 235mn pounds comprises of four Tranches bearing interest @ 11%,
divided into four tranches – A, B, C and D. Amount raised via tranches A and B were used for
funding the acquisition whereas C and D tranches were used capital expenditure & WC
requirements. The tenure varied from 7 years to 9.5 years, with a coupon rate of around 11%
which was 424 basis points above LIBOR.

Key takeaways:
First of all, Tata Tea Ltd. had a major merger deal of Tetley in the year 1999-2000. Also at the same time,
Tata Tea’s competitors Hindustan Lever Ltd. were also involved in a series of M&A activities.

Secondly, both the companies engaged in Merger activities because they wanted to increase their
market shares and increase profitability. When Tata Tea acquired Tetley, it was concerned with
strengthening its position and to diversify geographically through a dynamic merger activity.

Thirdly, that the consequences of the merger activity. Tata Tea Ltd. steadily increased its market share
and had significant variations in the market share over the last few years. The overall effect of the
merger on market share ranged from neutral to positive.
References:
1. https://www.indiatoday.in/magazine/cover-story/story/20091228-2000-tata-tea-tetley-merger-
the-cup-that-cheered-741660-2009-12-25
2. https://www.ukessays.com/essays/marketing/tata-merger-with-tetley-group-marketing-
essay.php
3. https://viden.io/knowledge/1964/attachments/6924?name=15092981604782.pdf
4. https://qz.com/india/1474335/tea-gardens-to-tetley-a-brief-history-of-indias-tata-tea/
5. https://www.thehindubusinessline.com/2000/02/29/stories/14291873.htm