Tata Tea Blog

Friday, September 07, 2007

Tata Tea looking for a bite of Cadbury?

Tata Tea has shown interest in a piece of Cadbury's global beverage business, not as a buyer or in making a financial investment, but as a strategic partner. In an exclusive interview to CNBC TV18, R K Krishnakumar for the first time has revealed that Tata Tea was invited to be a strategic partner by a consortium of private equity players.

Krishna Kumar, who is the Vice Chairman at Tata Tea, said, "I'm not saying we are pursuing Cadbury. We are invited into the process as a strategic partner and we may or may make any investment at all."

If Corus hadn't happened, the largest cross-border acquisition by an Indian company was Tata Tea's purchase of a 30% stake in energy brands for USD 677 million. The USA based company sells enhanced water products under the Glaceau brand. But in less than a year Tata Tea was forced to sell out to coke that made a USD 4.2 billion bid for Glaceau.

Excerpts from an exlusive interview with CNBC-TV18:

Q: Did you consider Glaceau a failed deal or fait accompli?

A: We had worked out an arrangement by which we would have secured 65% in Glaceau and that would have been an enterprise value of over USD 1.2 billion at that time. We had even lined up finances for it but there was a certain amount of concern about the size of that transaction. At that time, Glaceau was a very small EBITDA company, which had a turnover of close to USD 600 million. We discussed it internally and Mr Tata was convinced that this is the right move to make and so was I and we moved forward. But because of the concern expressed, we stepped back from 65% to 30%. We paid, at that time, the enterprise value of USD 2.2 billion and we only have a 30% stake in the company, we are minority shareholders. The management of this company had a great offer from Coke and the offer was for USD 4.2 billion, almost double.

Had it been 65% we would not have sold, at the same time being a minority shareholder, we did not want to stand in the way of the management in accepting this offer and taking that option. I do not believe that it is a failed transaction, because I believe that it is just a deflationary move and that there are other targets and there is the learning that we have made in eight months time. All that goes to make new beverages happen. Our insight for the whole beverage group in our company, the insight into what is driving change in that market makes us extremely interested in making a couple of potential moves in the coming period ahead. So it might look like as of we sold out and we lost out, we would have made a bigger profit but that is aside, I am saying that that journey continues, that persuade continues and the Holy Grail of that exercise is to be where the future is unfolding. I do not think that the fact that we stepped out of Glaceau prevents us from stepping in somewhere else, it is something that we need to do.

Q: Where is that somewhere else?

A: I am not going to tell you.

Q: Do you regret not having that 60%?

A: Personally, I certainly regret not having taken that 65%.

Q: Was there any thought in your mind to battle Coke or was the offer just overwhelming?

A: The offer was not overwhelming. We did put on the table a willingness to more than match that offer, but what we recognised was that Coke bought another dimension into that transaction. Coke distribution, which could have taken Glaceau not only a big player in the United States, but globally expanded it. At that point, we did not have that; had we acquired Cadbury we may have had some distribution muscle. But, at that point we did not have the distribution muscle so I think it is a very wise decision to say, sure you want to take that offer, you should do that, and we look for other opportunities and I am sure many opportunities will come.

Q: Cadbury’s sale is on hold because of the volatility in the market place, but it will come back to the market at some point. It is a huge transaction from what I hear, the valuations ranged around USD 8 billion.

A: No, it’s more. I am not saying that we are actually pursuing Cadbury, in fact we are not pursuing Cadbury. We have been invited into the process as a strategic partner and we may or may not make any investment at all.

Q: What does that mean they have invited into the process of a strategic player? Would you work with private equity players?

A: Basically there were two consortiums looking at that opportunity, very large private equity players. One of them was very keen that they should have a strategic partner and we talked to them and we said that we would not make any investment, because we are not convinced as yet. That is the right one to be associated with, so they invited us and we went in and looked at the operations along with the consortium and their enterprise value to USD 16 billion, it is a very large operation. So we looked at it as a strategic investor, but we decided that we would not invest in that acquisition because we were looking for some sunrise industry, we were looking for some cutting edge products and not something that has been there for quite some time. We were invited only as a strategic partner.

Q: Would that mean a management contract of some sort?

A: It would have meant being involved at the board level and setting direction.

Q: When this deal comes back on the table, would you be tempted to take up the offer of being a strategic partner if all things go well and the consortium becomes the winning consortium?

A: I think yes, but hopefully we would have moved on in the interim.

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