The Hindu Business Line : Tatas buy 30 pc of US beverage co for $677 m

The Tata group on Wednesday announced a major stake acquisition. Tata Sons and Tata Tea will together invest $677 million (Rs 3,150 crore) to buy 30 per cent stake in US-based Energy Brands Inc (EBI) and provide additional growth capital, said a company statement.

The investment is among the largest by any Indian corporate and certainly the largest ever by the group.

The stake will be bought from TSG Consumer Partners, a private equity company.

EBI are makers of the Glaceau range of wellness beverages, the product line including vitaminwater, smartwater and fruitwater.

Of the $677 million, Tata Tea will invest $192 million and Tata Sons $58 million, in the form of equity in Tata Tea GB (owners of Tetley) through which the transaction is being made, said Mr R.K. Krishna Kumar, Vice-Chairman of Tata Tea and Director of Tata Sons, in a conference call.

The rest of the amount will be raised by way of debt by Tata Tea GB.

Tata Tea has the ability to have sufficient surpluses even after servicing this debt, Mr Krishna Kumar said.

The Tata group explained the rationale for this acquisition, which most analysts described as "phenomenally expensive" for a 30 per cent stake where the results of the company getting acquired cannot even be consolidated with that of Tata Tea.

"It is a huge acquisition that one could describe as a transformational acquisition," said an investment banker who handles the FMCG sector.

"For the Tata group it is really huge, and if Tata Sons is stepping in then it is a strategic one, though we don't know what a 30 per cent stake can bring to the table."

According to Mr Krishna Kumar, it is the growth potential of EBI that is of consequence.

The company will report estimated revenues of $350 million this fiscal, clocking 100 per cent growth.

Going by the performance of the nearest peers, it will grow 100 per cent in the next fiscal too to report revenues of $700 million, he added.

And though the stake to be acquired through the agreement is only 30 per cent, there are special terms.

The Chairman of the company will initially be nominated by the Tata group; in addition, two directors from the group will attend all meetings of the company.

"It is a negotiated partnership," said Mr Krishna Kumar.

Mr Darius Bikoff, founder-promoter of the company, his associates, employees and distributors own 60 per cent stake in the company.

Ten per cent is owned by several private equity investors.

There are several possibilities going ahead: "The company may get into an IPO situation. And if there is an opportunity, we will obviously, and hopefully, go up (increase stake)," said Mr Krishna Kumar.

Explaining what the Tata group sees in wellness beverages, he said: "Europe, China and India are strong tea consumption countries. In the US it is different.

They are moving into something entirely different and leading the path for beverages. Glaceau also has some products that have green tea as their base. We are going for a share of the bladder."

Tata Tea had bought the UK-based Tetley for $407 million in 2000.

Tata Coffee, its subsidiary, bought the US-based Eight o'clock Coffee Co for $220 million in June this year.

During the current fiscal the company also bought Good Earth of the US.

On Wednesday, the Tata Tea scrip fell marginally on the bourses.

On the BSE it closed the day at Rs 827.90, down 2.2 per cent from the previous close. The stake acquisition announcement came after market hours.

More Stories on : Beverages | Mergers & Acquisitions | Overseas Investments | Tea | Tata Tea Ltd

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