Tata Tetley: Managing the Tetley Acquisition

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Introduction

Tata Tea Limited (TTL), the second largest tea company in India (behind Hindustan Lever Ltd.), had a significant presence in over 35 countries. In 2003, TTL recorded revenue of $711.0 million and a net income of $17.5 million. Branded teas contributed 88% of the consolidated turnover of the group, with the remaining 12% coming from bulk tea, spices and investment activities. In 2000, TTL had acquired Tetley a major UK tea manufacturer. Analysts had expressed doubts whether the deal would be managed successfully. Three years after the takeover, things seemed to be improving. But there were still concerns whether TTL could service the huge debt burden resulting from the deal and whether the synergies projected before the merger could be realized.

TTL's operations spanned the entire value-chain in the tea business, including research and development, tea cultivation, manufacture of black tea, branding and distribution. The company owned 51 tea estates in India. TTL had an area of 26,500 hectares under tea cultivation and produced around 60 million kgs of black tea and two million kgs of instant tea annually. It operated nine modern packaging units across the country.

TTL's growth strategy had been multi-pronged - strengthening its business in existing geographies, expanding into new geographies and entering new product categories. TTL's brands were found in the Middle East, West Asia, North Africa, Kazakhstan, the US and Canada. Joint venture companies had been set up in Bangladesh and Pakistan for marketing the Tetley brand...

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