Tata Tea Blog

Friday, September 07, 2007

Tata Tea eyes broader range of water products

Tata Tea Ltd plans to use a newly acquired mineral water brand to launch premium and mass-market packaged products for health-conscious consumers, a senior company official said on Thursday.

Tata Tea, the world's second-biggest branded tea firm, has taken management control of Mount Everest Mineral Water Ltd after it bought nearly 26 percent of the company in June. It plans to make an open offer for a further 20 percent. Tata Tea will use the "wellness" plank to sell Himalayan mineral water and other water products, Pradeep Poddar, managing director of Mount Everest Mineral Water, told Reuters by telephone.

"The opportunity in water is very exciting for us," he said. "We are looking at niche segments such as functional and enhanced water, as well as mass offerings for the lower end of the consumer pyramid," he said, referring to vitamin- or mineral-enhanced water and basic packaged water.

Last year, Tata Tea bought 30 percent of U.S. vitamin water maker Energy Brands Inc. It sold the stake to Coca-Cola Co in May for $1.2 billion, nearly twice what it paid, but said it was still keen to increase its presence in non-tea beverages, including through acquisitions.

Local media have reported Tata Tea was interested in U.S.-based AriZona Beverages as well as Cadbury Schweppes Plc's North American beverages unit.

Tata Tea, which owns the Tetley brand, has bought herbal and fruit tea brands in the United States and eastern Europe, and has a green tea venture in China. It also plans a venture in Russia.

Tata Tea would also look at launching Himalayan water, or other brands it develops, in overseas markets, Poddar said.

"We will have a plan on the table in three to six months," he said, declining to specify investments.

The Indian market for packaged water, estimated at about 20 billion rupees ($490 million), is growing quickly on the back of higher incomes and the expansion of modern retail.

Tata Tea Mulling $2B Acquisition of AriZona Beverages

India’s Tata Group is eyeing possible acquisition targets in the beverage market in the U.S., primarily AriZona Beverages, best known for its iced tea, according to media reports here.

The Tatas have been interested in AriZona Beverages for three years now, The Economic Times of Mumbai said in a report quoting unnamed sources. Company officials did not comment on the rumors.

Long Island-based AriZona began as a beer distributor in New York’s market in 1971. The company diversified into its well-known tea brands only in 1992. Its product line now includes juices and carbonated drinks. Tata Tea is looking at a possible buyout offer of $2 billion for the U.S. business.

The Tatas were also reportedly part of a consortium led by the Blackstone Group that was eyeing Cadbury Schweppes’s beverage business in North America, estimated at around $16 billion. But Cadbury said last month that it was extending the transaction because of volatility in debt markets. The Tatas were keen on a stake in Cadbury’s popular Snapple brand that would extend their portfolio in the U.S. market.

Last August, Tata Tea picked up a 30% stake in vitamin water brand Glaceau. But it sold the stake to Coca-Cola for $1.26 billion when Coke acquired Glaceau’s parent Energy Brands in May.

At the time, Tata Tea Vice Chairman R. K. Krishna Kumar said the company was keen on aggressively expanding in the U.S. markets and would build up a beverage brand there through inorganic growth. Officials said they were keen on 100% acquisitions, as is the company’s habitual preference, the Glaceau stake notwithstanding.

At present, revenues from the tea business account for 86% of the company’s turnover. Britain’s Tetley Group, the second largest bagged tea brand globally, is also a subsidiary of Tata Tea.

Tata Tea plans Russia venture

Tata Tea is planning to set up a joint venture company in Russia to tap opportunities in the tea and coffee space.

Speaking on the sidelines of the company’s annual general meeting, Tata Tea Vice-Chairman R K Krishna Kumar said, Tata Tea was talking to a few companies and hoped to set up the joint venture by the end of the current financial year.

The move is part of Tata Tea’s plans to expand its global footprint. Krishna Kumar said, the company would like to have a global footprint from Japan to the US. “We are looking at the beverage market in the US since Tetley already has a footprint in Europe and Canada,” he said.

He declined to comment on possible targets. At present, Tata Tea has a global market share of four per cent and ranks second while Unilever tops with 15 per cent share. Krishna Kumar said, the company would narrow down the gap by having innovative products. He mentioned the joint venture in China for manufacturing polyphenol extracts in this context.

Earlier, addressing shareholders, Chairman Ratan Tata said, the company was not restricted to India and had truly become a global company. “We have an exciting future ahead of us,” he said.

He also mentioned the company was migrating from plantations to branded operations. Around 89 per cent of its revenues came from branded business. He, however, clarified that the company had initially guaranteed offtake from the restructured plantation companies at auction prices.

Tata Tea announced North India Plantations restructuring towards the end of 2006-07. In 2005, South India Plantations was restructured to form Kannan Devan Hills Plantations Co, in which Tata Tea currently holds a 18.2 per cent stake.

Tata said, the south Indian plantations were making losses prior to the restructuring. But last year the company recorded a profit of Rs 8-9 crore and was expected to be in the profit zone this year as well.

Tata Tea on global mission

There’s nothing definite yet. But Tata Tea may consider a host of key strategic initiatives, including change of company name, amalgamation of its beverage businesses globally and even a stock-split at an appropriate time.

This was indicated on Friday by Tata Group chairman Ratan Tata. He was speaking at Tata Tea’s AGM in the city. The announcements are in step with Tata Tea’s long-term ambitions to emerge as a global beverages heavyweight.

Addressing Tata Tea shareholders, Mr Tata said; “We may consider a name change for the company at an appropriate time. Right now, Tata Tea is largely a tea company. We may also have to consider amalgamating of all our beverage businesses at the right time after evaluating tax implications.” He also hinted at a stock-split in response to a specific shareholder query.

Underscoring Tata Tea’s global ambitions, Mr Tata said, “The company is no longer an Indian company. It is an Indian-owned global company. We are gradually converting it into a wellness beverage company. We are looking at different geographies to expand global footprint.”

Significantly, Tata Tea, which is the world’s second largest branded tea company, has drawn up a road map to expand its global footprint.

Among other things, the company is scouting for acquisitions in the US and South America, setting up a joint venture in Russia and strengthening its presence in China through its joint venture company formed recently with Zhejiang Tea Import and Export Co Ltd (ZTIE). The Chinese JV will also enable the company to make an entry into the Far East.

The company will also make a Rs 15-crore capital expenditure in its existing facilities in 2007-08. At present, Tata Tea has several beverage businesses like Tetley, Jemca, Joekels, Goodearth, Eight ‘clock. Talking to newspersons, R K Krishna Kumar, Tata Tea vice-chairman, said, “We plan to set up a joint venture company in Russia with one or more partners which will look at opportunities both in tea, coffee and other tea-based beverages. There has been an economic upturn in Russia and CIS nations and these destinations are suddenly becoming profitable. This venture will enable us to penetrate in countries like Ukraine, Kazakhstan and others. We hope to float the JV this fiscal.”

Incidentally, the company has already initiated a market research in Russia and adjoining areas. The company’s JV with ZTIE will enable it to strengthen its presence in China. “The JV will work on green tea extracts and polyphenols and come up with some wellness products.”

“Our experience with Energy Brands show that the United States is an extremely profitable market. To become a global player, we need to have a strong presence in the US,” Mr Krishna Kumar said.

Tata Tea shuts down Dooars estate

The Tata Tea-owned Damdim Tea Estate issued a lockout notice this morning after the garden’s managerial staff was kept confined to the office for 15 hours yesterday.

The workers have denied the charges and blamed Uday Bhanu Das, the new manager of the garden who had come from Assam a few months ago, for the crisis.

The garden, 45km from here, was once considered a model tea estate in the Dooars in terms of worker-management relation. It was the first garden to complete individual electric metering system in the workers’ quarters, sources in the industry said. Even Chanu Dey, the CPM zonal committee secretary of Malbazar, where the garden is located, admitted that the track record of the garden as far as payment of wages, ration and other benefits are concerned, is near perfect.

“But the new manager was always experimenting — from holidays to work culture, he was changing everything,” said Dey. Apparently, Das had switched the weekly holiday from Sunday to Monday. “Not only that, plantation workers were brought to the factory and factory workers sent to pluck tealeaves. If any worker protested, the person was not assigned any work for 10 days at a stretch,” Dey added.

The lockout comes two months after Jairam Ramesh appealed to chief minister Buddhadeb Bhattacharjee to rein in “local-level leaders” of a Left trade union — meaning the Citu — to end the crisis in the tea industry. The request came close on the heels of the central minister’s ultimatum to owners of closed gardens to either open their estates or they would be acquired under Sections 16 (D) and (E) of the Tea Act.

But this time, it is not the “Left trade union” alone. Sadhan Bose, representing the Intuc-affiliated National Union of Plantation Workers in Malbazar said they were not happy with the manager either. “The labourers (the garden has 2,200 permanent labourers) were forced to work on August 15.” Bose, however, denied the charges of confinement. “Some workers had demonstrated near the factory yesterday. But most of the issues were sorted out at night through mutual discussion,” he added.

With D. Borah, the vice-president of North Indian Plantation Operations – the Tata Tea subsidiary formed with 21 gardens of Assam and four of north Bengal – not available in Guwahati, officials of the Dooars branch of Indian Tea Association (DBITA) have blamed the workers for the current crisis.

“Workers of the Barron division had confined the manager and some of his staff. They also did not allow the unloading of 46,000 kg of tealeaves brought to the factory,” said Prabir Bhattacharjee, the secretary of DBITA of which Damdim is a member.

Kallol Dutta, the deputy labour commissioner of Jalpaiguri, said his department was yet to receive a notice. “Company representatives have promised to settle the issue through bipartite meetings. In case it fails, we will fix a date for a tripartite meeting,” said Dutta.

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.