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Tata Tea: Brewing a global mix - Views on News from Equitymaster
 
 
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  • Jun 19, 1999

    Tata Tea: Brewing a global mix

    Tata Tea, a part of the Tata Group (combined turnover in excess of
    USD 8.8 bn), is acquiring Tetley, the UK based packaging and tea blending company, for about 200 m UK Pounds. Tetley has a 7% share in the US$ 600 m world tea market. Tata Tea is said to be taking the leveraged buyout route to acquire the company.

    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 acquisition will give Tata Tea a formidable presence in the international market. Synergies will emerge as the tea that Tetley currently buys from the open market could be procured from Tata Tea (FY99 production of 59.7 m kilograms), while Tata Tea could use the world renowned blending resources of Tetley. Moreover, the parallel infrastructures might be done away with, atleast partially, thus again cutting costs. The company, however, has yet to make public the details of the agreement.

    On the other hand, the leveraged buyout could strain the cash flows of Tata Tea, which are a factor of the 'volatile' tea prices. Already, in the current year, tea prices have fallen below the previous years' prices. This could impact profitability and in turn cash flows.

     

     

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