The acquisition of Tetley by Tata Tea finally seems to be drawing to a close with the latter planning on issuing US$ 100 - 150 m worth of global depository receipts (GDRs). The funds are likely to be infused into a special purpose vehicle (SPV), formed for the purpose of the takeover.
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 Tata Tea - Tetley deal has been hitting the headlines for nearly six months now. First the issue was pricing of the deal and later the manner of acquisition. The board of Tata Tea seems to have finally given the go ahead to the proposal of setting up an SPV.
The deal will benefit both the companies, as there are considerable synergies to be exploited. Tetley could source tea from Tata Tea (it currently sources it from the open market) while the latter could use the world-renowned blending resources of Tetley. This will lead to a reduction in costs while at the same time making the group vertically integrated.
However, in the near tem the deal is likely to be more of a burden for the shareholders of Tata Tea. This is mainly because of the fact that there will be an equity dilution while no new revenue stream will be added to the company. This will dilute the earnings per share.
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