Tata Tea Limited has issued US$ 75 m worth of Global Depository Receipts (GDRs) at a price of US$ 9.87. The issue has been made at a discount of approximately 5% to the domestic price.
Tata Tea (FY99 Total Income Rs 8,832 m) is the world's largest integrated tea company, accounting for over 8% of the tea grown in India. The company, which is the second largest blender/marketer in the domestic packaged tea segment, operates the largest instant tea EOU outside the United States of America.
The purpose of the GDR issue is to fund the company's contribution to the special purpose vehicle (SPV) set up for the takeover of Tetley. The total funding required for the takeover has been placed at UK Pounds 271 m.
We have often gone into the merits and demerits of the merger from the point of view of the two companies. Let's focus on the financial aspect point of view.
Tata Tea has diluted its equity to fund the takeover of Tetley. The company has infused equity in a SPV (100% owned by Tata Tea) for the purpose. What needs to be noted is that though the equity dilution is immediate the significant benefits will flow in only later as the two companies integrate operations. Also there is little chance that the SPV will pay a dividend to Tata Tea, as it has to service a large burden of debt.
However it needs to be pointed out that from the point of view of the tea business both the companies have a lot to gain – Tata Tea will gain brands and an international distribution network. Tetley on the other hand will get to source its supply of loose tea from Tata Tea.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407