MUMBAI, FEB 27: In the biggest-ever deal in Indian corporate history, Tata Tea signed a Å“ 271 million (Rs 1,870-crore) deal to buy out all the brands of Tetley of UK on Sunday. The deal structure will involve the creation of a 100 per cent Tata Tea subsidiary which will act as a special purpose vehicle to hold all Tetley properties.The Tetley deal is the largest cross-border acquisition by any Indian corporate. It is also the first instance of an Indian company breaking the domestic mould and going international in a big way. The previous largest deal in Indian corporate history was the Rs 1,065-crore PowerGen deal to buy a 46 per cent stake in Gujarat Torrent, followed by the Rs 1,030 crore acquisition of Gridco distribution network in Orissa by BSES.Tata Group chairman Ratan Tata said it was a momentous occasion for the Tatas as this was the largest-ever acquisition by an Indian company abroad in terms of acquiring an international brand. ``It is a bold move and I hope that other Indian corporates will follow,'' he said. The acquisition of Tetley, which has sales of Rs 1,900 crore, will be financed with Å“ 70 million of equity of which Å“ 60 million would be from TTL and Å“ 10 million from its New York-based subsidiary, Tata Tea Inc.TTL vice-chairman R K Krishna Kumar said its GDR issue of Å“ 45 million, which is presently underway, would part-finance the equity component. The debt component of Å“ 20 million would be raised through instruments like subordinate vendor loan notes and debt offerings arranged by Rabo Bank, which acted as the financial and strategic advisor as well as sole lead manager for this transaction, he said.Tata Tea has already obtained permission for the GDR float, and the remaining Å“ 230 million in debt has been tied up through a structure of instruments. Tata Tea's acquisition of Tetley is expected to provide the company access to markets in North America, Europe and Australia. Exports account for 20-25 per cent of Tata Tea's turnover. Tata Sons director N A Soonawalla, who is also the deputy chairman of TTL, said the venture capitalists, who presently own the Tetley brands and wanted to exit from the business, have given a loan of Å“ 21 million to the Tatas, which the latter would repay within 12 months as it was a high cost loan. He said the GDR pricing would be decided after the roadshow and would be listed on the London and Luxembourg stock exchanges.The combined turnover of Tetley and Tata Tea works out to Rs 2,800-2,900 crore. Tetley UK has the world's largest market for tea bags. Tetley's major products include black tea (made from leaves that are fully oxidised or fermented), orange pekoe, dripless Tetley drawstring tea bags, and teas with various flavours like black currant, strawberry, lemon, apple and cinnamon. It also offers an extensive array of full-bodied herbal teas.The structure of the deal will ensure that while the additional funding costs do not have a bearing on the Tata Tea balance sheet, the tea major is in a position to reap all the benefits that this international brand will bring to the group.The present senior management of Tetley at UK would continue while at the board of directors level there would be induction from the Tatas. Kumar said the Tata group ``has total confidence in the Tetley management, which will be retained with such involvement from TTL as may be required. Tetley enjoys a global number two position in the tea bag market as it sells almost entirely in the form of teabags. India produces 805 million tonne of tea and the per capita consumption is 600 grams, less than Pakistan. ``If it goes up by 300 grams then we have to think of imports,'' he added.On acquiring tea estates in India and abroad now that Tetley has been acquired, Kumar said ``we are looking at opportunities.''
