TATA & TETLEY LBO

Flow of presentation
Introduction
Tetley
Tale of Tata Tea
LBO
Structure of the Deal
Synergies
Pre-Post Merger
Introduction
One of the most important milestones in the Indian
corporate history.
In the Year 2000, Tata Tea acquired the iconic Tetley
Brand in a 450 m. $ deal from Schroeder Ventures
and PPM ventures.
Tata Tea managed to fend off bids from Sara Lee
and Nestle
At the time of acquisition, Tata Teas net worth was
only $ 114 m.
It was also the largest cross-border acquisition by an
Indian company at that time.
This was also the first ever leveraged buy-out by an
Indian Company.

Tetley
Established by Joseph and Edward Tetley in
1837 in Yorkshire, England.
An Iconic brand, Tetley is considered to be
the inventor of teabags
At the time of acquisition, Tetley was the
Second largest tea company in the World
In India, Tata and Tetley Tea entered into a
joint venture to produce tea bags in the Year
1992
The Tale of Tata Tea
Incorporated in 1962 as Tata Finlay Limited
Tea factory in Munnar(Kerala) and blending/packaging
unit in Banglore
In 1982, renamed Tata Tea ltd. after Tata Industries
Ltd. bought out the entire stake of James Finlay and
co.
Set up Tata tea Inc in Florida to meet the demands of
US market
In order to meet the needs of Japan market entered
into JV with Hitachi to form Tata Hitachi Sales Limited
In 1984, set up R&D facility in Munnar
In 1989, bought 52% stake in Consolidate
coffee limited of Karnataka
By 1994 bought 64.5% stake in Asian
Coffee to consolidate its position in the
coffee industry
Why the deal made sense?
Complementary specializations.
Readymade access to the European and
North American market.
Financial setbacks for Tetley in recent
years.
Acquisition enabled Tetley to reduce its
debt-equity ratio.
Integration structure.
Leverage Buy-Out
Acquisition of a company through a combination of
equity and debt
Jerome Kohlberg, Jr. and Henry Kravis coined the
term
Formation of SPV
Stock Purchase Format
Asset Purchase Format
Management Buyout
Future Cash Flows or the Assets of the company as
security
Increased Debt Equity ratio
Advantages of LBO:
Heavy Interest & principal forces management to improve
performance & operating efficiencies such as
Cost improvisation cost reduction
Divesting non-core business
Investing in technological upgrades
Significant reduction in agency cost
Tax shield

Disadvantages Of LBO

Financial distress uncertainties
Increased fixed costs associated with debt financing
can worn out the effect in case of downturn in
business cycles.
In Leveraged acquisition, banks have a say in what is
being done.
Largest acquisitions by indian
companies
Structure of the deal
Special Purpose Vehicle - Tata Tea(Great
Britain)
To acquire all the assets of Tetley
To ensure that Tata Tea's balance sheet
does not suffer additional funding costs
Will be merged into Tata Tea Ltd, once it has
paid its debt obligations


SPV

SPV
TATA TEA
GREAT BRITAIN
(70 mn)
TATA TEA INC TATA TEA
(10 mn)
(15 mn)
GDR Issue
(45 mn)
100%
subsidiary
SPV
The SPV leveraged the 70 mn equity 3.36 times to
raise a debt of 235 mn to finance the deal
Entire debt amount of 235 mn comprised 4
tranches A, B, C and D whose tenure varied from 7
to 9.5 years
Coupon rate of around 9% (LIBOR + 424 bps)
Where did it go?
Tetley Acquisition 271 mn
Legal, Banking and Advisory services 9 mn
Tetleys WC requirements - 25 mn

Netherland based RABOBANK - 185mn
Intermediate Capital Group - 30 mn
Venture capital funds
Mezzanine - 10 mn
Schroders - 10 mn
Debt raised against Tetleys brands and
physical assets
Valuation on the basis of future cash flows

Debt repayment structure
A B C D
Amount 110 mn 25 mn 10 mn 20mn
Loan Type Long Term Long Term Long Term Revolving
Purpose Funding
Acquisition
Funding
Acquisition
CAPEX WC
Year of
Maturity
2007 2007 2008 2007
Pay Back
Method
Semi Annual
Installments
2 instalments
in 07-08
2 instalments
in 07-08

Cessation of
Credit
Merger - the process
In structured finance the word tranche refers to
one of several related securitized bonds that are
offered as part of the same deal. They are called
tranches since each bond is a slice of the deal's
risk.
All the tranches together make up what is referred
to as the deal's capital structure or liability structure
Structured Finance.
Tailored financing solutions
Financing with hybrid securities
Asset-backed securitization
Leveraged and acquisition finance
Uses of structured finance:
aligning securities to investor needs - term, credit
risk, prepayment risk, interest rate risk, etc
Concept of SPV - explained
Tata Tea (GB) and SPV was created as a part of
securitization process.
Securitization is the process of pooling and
repackaging of homogenous illiquid financial assets
into marketable securities, that can be sold to
investors.
Tata Tea (GB) took over all the properties of Tetley
Concept of SPV - explained
Tata Tea originated Assets of Tetley through
receivables, leases, any other form of debts and
funded the same on its BS. ( Originator)
Portfolio of Tetley assets were then sold to Tata
Tea (GB) SPV for funding the assets.
Concept of SPV - explained
Tata Tea (GB) issues debts and purchased the
assets from Tata Tea.
Tata Tea (GB) was owned by Tata Tea
Debts issued by Tata Tea are secured by assets
acquired from Tetley ( Obligor).
Tata Tea (GB) subcontracts the administration of
assets back to Tata Tea.
Concept of SPV - explained
Tata Tea (GB) issued tradable securities tranches
to fund the purchase of assets.
The performances of these tranches were directly
linked to the performance of the assets
RaboBank, Prudential Mezzanine Capital, Schroder
Ventures and Intermediate Capital Group
purchased the securities offered by Tata Tea (GB).

Concept of SPV - explained
They all invested because they were confident that
the securities would be paid in full and on time from
the cash flows that is made available from the asset
pool.
Money collected by Tata Tea (GB) was paid to Tata
Tea.
As cash flow arises on the assets, Tata Tea (GB)
used for repaying funds to the investors in the
securities.
Securitization the process
Credit Enhancement
Credit Enhancer
Liquidity Provider
etc.
Third parties
Transaction Servicer
Transaction Administrator
Corporate Administrator
Bondholders Representative
Paying Agent
Credit Rating Agency
Underwriter(s)
SPV
Sales of pool
of assets
Advisor of the program
- Financial Advisor
- Legal Advisor
- Tax/Accounting Advisor
Originator Obligors
Receivables
Investors
ABS
Issuance
Securitization the process
Tata Tea ( GB )
Special Purpose Vehicle
Ancillary Service
Provider
Investors
Tata Tea
Originator
Tetley
Obligor
Sale of Assets
Consideration
for Assets purchased
Issue of Securities
Subscription of securities
Securitization the process
Originator Tata Tea
Sell/transfer the right to receive future cash flows (receivables)
due under certain contracts to SPV (I)
Special Purpose Vehicle (SPV) Tata Tea (GB)
Purchase the right to receive future cash flow (I)
Enter into contracts with originator, third parties and others
relating to the transaction (I)
Issue ABS to investors, ABS repayment relies on future cash flow
due under contracts (I)

Securitization the process
In traditional methods of corporate finance, a
corporation raises equity/obligations to own
assets.
In securitization, a corporation creates and
securitizes assets - that is, transfers assets in
form of securities.
The claim is on assets, and not on the entity,
hence, asset-based funding
Asset backed funding lies in reducing the equity,
and increasing the leverage
Securitization the process
SPV are used in securitization transactions as
devices of hiving off assets and converting assets
into securities.
SPV are not companies in substantive operations;
they do not have any business except acting as a
legal instrumentality. This is necessary to ensure
asset-backed securities

Synergies
Tetley
Access to Tata Teas gardens and production
base
Access to Indian market
Tata Tea
Tetleys premium brands and global distribution
network
2
nd
largest in India to 2
nd
largest in the world
Tetleys technical expertise
Upgrade product portfolio and increase
competitive position
Post Merger
Tetley was expected to bring volumes in the short
term and greater opportunities in the long term
Tata and Tetley formed several groups tea
procurement group, geographic expansion group,
R&D sharing
Legal merger took time as Tetley D/E ratio was too
high and it needed to come down to 1:1
Initial Cultural differences


Acquisition contributed to significant increase in
sales volume Rs. 6870 mn before acquisition to
Rs. 67256 mn in FY12 (CAGR of 18% approx.)

As of FY12, Tetley brand contributes to 40% of
Tata Global Beverages revenue

As of FY12, Tetley is the only brand under Tata
Global Beverages stable with presence across the
globe