Tata Merger With Tetley Group

Tata, a solid player at home, became a worldwide competitor with this acquisition. It had been dubbed the merger of a worldwide shark by an Indian minnow. The international marriage - success is based on complementing the other person. The year 2000 observed the Tata group acquire the Tetley group based in UK where the deal; was sealed for 271 million pounds.

AN SUMMARY OF TATA TEA LIMITED

TATA Tea was set up in 1964 as a joint venture with a UK structured Wayne Finlay and

Company to build up value added tea. From only talk about of 3% in the middle 70's to become

India's second largest tea designer, The businesses of Tata tea and its subsidiaries focus on top quality product offerings in tea but with a significant existence in plantation activity in India and Sri Lanka. The Tata tea brand leads market talk about in conditions of value and level in India and has been accorded the 'excellent brand' acceptance in the country.

Tata tea also offers 100% export oriented unit manufacturing instant tea in the point out of Kerela, which is the major such facility outside the USA.

AN SUMMARY OF TETLEY

In 1837, two brothers, Edwards and Joseph Tetley began to sell tea and became so

famous that they create as tea retailers. In 1856, in partnership with Joseph Ackland,

they create "Joseph Tetley and Co. , wholesale tea dealers".

Tea was rationed during World Conflict II, it was not until 1953, just after rationing completed,

that Tetley launched the tea carrier to the UK and it was an instantaneous success. The rest, as

they say, is history. The tea handbag experienced captured the public's creativeness and desire for

convenience. Within a decade it revolutionized how Britons drank their tea and the old

fashioned tea pot got given way to making tea in a cup by using a tea tote.

1974 Tetley Tea Company was bought by J Lyons who merged it with the Lyons tea

business to create Lyons Tetley. 1978 Allied Breweries received J Lyons' Businesses then

as Allied Domecq sold them in the 1990s. The Tetley Group was made in July 1995,

when several investors bought that which was then the world-wide beverage business from

Allied Domecq. On 10th March 2000, The Tetley Group was sold to Tata Tea Small,

one of the world's largest involved tea businesses.

Analysis of the merger

The package was a unusual example of an Indian company taking over a larger English group.

The merger was undertaken on two counts

For one, Tata Tea acquired their global ambitions well set up, as they wanted to take Tata Tea to the global markets.

The second reason, from Tata's side was the actual fact that they wished to understand the global distribution system.

The Merger was being viewed as something good for both the gatherings given the synergies that were expected.

Background

In the setting of the difficult domestic scenario and dwindling exports to Russia is was

not difficult to summarize what prompted Tata Tea to visit for an acquisition, that too at such

a mammoth level. So far as the level of merger's worried it could be said that

nothing significantly less than this type of merger could have been meaningful for the company.

That is because the home market comparatively growing at a much better rate than the other

developed markets, 3% versus 1%, and rival HLL having great things about access of access to

parent Unilever's most advanced technology in product advancement, development and presentation, it

could have been a hard job for Tata Tea to go on its own to develop such

technologies and to face the competition. With the dangers of imports from rival

companies looming large, its woes could have aggravated even more.

Tea is usually exported at a comparatively early level in the creation chain and blending

and packing, the most lucrative part of the tea trade, is mainly done by the tea companies

in the customer country. The top revenue therefore don't accrue to the tea producing

countries. The big money is made overseas. In European countries, 30% to 50% of the buyer price

of tea would go to blending, presentation, materials and campaign.

It was there that the merger would help Tata Tea for taking good thing about the existing

scenario by virtue of Tetley's proven skills an blending and branding, not to mention

exotic packaging, which too fetches higher monthly premiums. Also, many suppliers try to sell

processed tea handbags or repacked consumer devices, however the export of ready-for-use tea is

often hampered by poor market information and the absence of money for expensive

marketing strategies.

It could be rightly said then that the offer was supposed to gather the two

companies, one of which was the most significant involved tea company (Tata Tea) on the planet,

while the other world's largest brand (Tetley). Collectively they make a world-class

planned to replace all the spherical tea carriers cartons with an innovative soft-pack format then.

Another area that Tata Tea was eyeing was the private label tea business in the UK.

Tetley which keeps sway over the marketplace, with 6 from every 10 suppliers sourcing tea

from it to sell under their own brands, was a perfect unveiling vehicle to push greater

volumes into that highly rewarding segment, way more when its exports to the Russian

markets have been have been on a continuing decline. The reason why the private label

was rewarding was that there have been no marketing costs mounted on it. That designed, by

sourcing tea immediately from its 26, 000, hectares of gardens, or from the public sale markets,

Tata Tea would be able to supercharge its margins. Surely the deal could not attended at a

more opportune time than that certain for Tata Tea.

The mergerimpact on Tata Tea's occurrence in the global tea trade besides, Tata-Tetley

ltd. , the already existing joint venture between the two companies, was seen aligned with

the group's international functions. Equally significant was the local company's plan

to open an instantaneous tea manufacturing plant in South India, which was improved for the moment tea

shipments to the united states, where Tetley got a major occurrence. Tata tea hoped to garner greater

market share and stave off the competition, traveling on Tetley's power.

Acting swiftly, Tata Tea initiated a comprehensive procedure restructuring of the world's

second-largest tea company, in a bid to move a step closer to unseating Unilever Plc. The

restructuring took types of the broader intend to go out into new market in East

Europe, Russia, the CIS and Western world Asia through both jv and franchise

route. The move was critical to increasing the UK based transitional revenue potential as

Tata Tea possessed leveraged the company's future cash moves to fund the 271 million pound

acquisition.

As area of the recast plan, Tetley, which possessed the world's solitary largest tea brand, was

shifting its target from dark tea to higher value added products like green tea, flavored

tea and herbal tea.

The key learning's from this merger were -

Pre-estimating the importance of cultural variances,

Adopting a non-threatening approach and

Absence of energy pressure.

This actually helped Tata Tetley improve results.

Initially, culture was a huge issue and had to be handled very carefully.

For example, Tata professionals would complain about being retained waiting when visiting Tetley's UK head office reception centre, despite being the older partners. On the other hand, Tetley people would complain about being run by Tata which realized only about India and nothing about Western marketplaces. " The ethnic integration, which is often a concern in a merger or acquisition, has been soft for Tata Tea and Tetley.

The companies were different but were learning from each other.

For illustration, Tetley is very process oriented while Tata Tea is quicker to answer plus more action focused. Tata was quite aware that it needed to be sensitive to the actual cultural obstacles of combining the two groups. Both the groups were aware of the culture difference that been around and alternatively than trying to dominate each other, they used a focused approach to blend both cultures. They treasured and worked well towards adding to each other's knowledge and skills and create business with less expensive prospects. The best part was that both the companies made a decision to leave behind the different cultures of Tata and Tetley and move towards defining a single company. It was the first step towards a merger.

Driving Makes for executing the Merger

The major driving a car pressure behind Tata Tea- Tetley deal, was the actual fact that Tetley fitted

perfectly into Tata Tea's globalization drive and may be considered a perfect kick off vehicle to

achieve better synergies in the global area.

This seems understandable as a result of three major factors:

The mergerbrought with it a greater market penetration.

This helped Tata Tea's operating efficiency, as Tetley's operating margins were superior in comparison to Tata Tea, 20% vs 14% in 1999-2000.

The mergerhave led to instant growth of products of Tata Tea- Tetley combine.

FLAVOUR OF SYNERGIES

The synergies that would have accrued to the incorporate entity therefore of the offer were

supposed to be noiseless significant.

On the main one side, while Tata Tea was supposed to get access to Tetley's strong brands and its own worldwide circulation network and about INR1900 crore of sales,

on the other palm, Tetley was likely to benefit from Tata Tea's competencies in taking care of plantations and finalizing models, which Tata Tea lacked.

It was here that the mergerwas coming convenient to Tata Tea, as Tetley experienced proven competence in the region of product technology and in sourcing tea from auction residences and which also was a major blending and presentation company and possesses a bunch of well-known international brands.

The success report - TATA Tea acquiring Tetley

Merger implications:- Position in the worthiness string 305 mn GBP

Tata Tea -pre acquisition:-40% of turnover originated from packet tea /tea bags

Tetley - pre acquisition:- 100% of turnover originated from tea / tea bags

Consolidated - post acquisition:- Company has moved up the worthiness string-84% of turnover originated from packet tea/tea hand bags.

Merger Implications:- Increased Outsourcing

Tata Tea -Premerger:Produced 95% of its tea requirement in- house

Tetley - pre merger:Outsourced complete need from 35 different countries, with around procurement of 3 million kilograms of tea every week

Consolidated - post merger:Today, 70% of Tata Tea's tea requirement is outsourced from different countries, thus reducing the risk associated with fluctuation in development arising out of varied factors.

Merger Implications:- Predictable Margins

Tata Tea -pre acquisition:- Margins highly correlated with tea cycle

Tetley - pre acquisition:- Margins inversely correlated to tea cycle

Consolidated - post acquisition- Margins hedged

Merger Implications:-Global Footprint

Tata Tea -Premerger:Predominantly local operations

Tetley - pre merger:UK and USA account for bulk of sales.

Consolidated - post merger:Global presence

CONCLUSION

Mergers and Acquisitions are the most important components of modern corporate

finance. The growing tendency of capital attention and company's preference for

external expansion, alternatively than interior way of development, establishes the significance

of mergers and acquisitions within the bounds strategic planning of company's

development.

The studies can be concluded as follows:-

First of most, Tata Tea Ltd. experienced a significant merger offer of Tetley in the

year 1999-2000. Also at the same time, Tata Tea's competitors Hindustan Lever Ltd.

were also involved with a series of M&A activities.

Secondly, both companies involved 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 also to diversify geographically

through a strong merger activity.

Thirdly, that the results of the merger activity. Tata Tea Ltd. steadily

increased its market share and had significant variations on the market share within the last

few years. The overall have an impact on of the merger on market share ranged from neutral to

positive.

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