1. TEA INDUSTRY
Tea plays a vital role in the lives of millions of Indians. They take it as a
refreshing drink as part of daily ritual. Tea offers livelihood to millions of people who are
associated with this industry. India produces some of the world‟s finest quality and also
the largest variety of tea. Among the famous specialty flavors are Darjeeling tea, Assam
tea and Nilgiri tea, which are grown in the Bengal, Assam and Tamil Nadu. Tea is
normally classified based on the processing, leaf size and grade. Fermentation creates
two major classifications, black and green tea. Black tea is further classified into CTC
(cut, tear and curl) and orthodox tea.
Indian Tea Industry Features
India is one of the largest producer and consumer of tea in the world, accounting
for around 23% of world demand
Tea is currently the second biggest in beverage category after the carbonated
soft drink market
Total turnover of package tea was approximately Rs 10,000 crores in 2009-10
In the packaged tea category, the unorganized sector accounted for over Rs
1500 crore
The labor intensive tea industry directly employs over 1.1 million workers and
generates income for another 10 million people approximately. Women constitute
50% of the workforce.
Special Features of India Tea Industry:
Production dependent of agro-climatic conditions
Same plant and same agro-practices give variations in quality in different
regions
Product Life is for limited period
Labor intensive
High Cost due to high input cost
No priority for Scientific Cost Management
Huge proportion old tea & Low Productivity

2. Types of Tea
Herbal Tea Black Tea Green Tea
CTC Orthodox
Industry Size
Indian tea industry stood at 988 million kg as of 2011, with the share to global
supply accounting for 23 %. It is currently the second largest producer of tea in the
world. In 2009, the size of the Indian tea industry was estimated at Rs 140 billion. Total
tea exports were approximately around Rs 2842.07 crores in 2011.
TEA Production by various Countries in 2011 (Figures in Million Kgs)
1800
1623
1600
1400
1200
988
1000
800
600
378 345
400 328
177 145
200 119
59 47 54 32
0
(Source : http://www.teaboard.gov.in/inner2.asp?param_link_id=41008)

3. Tea Production in India (Figures in Million Kgs)
990 988
986
985
980 979
980
975
970
966
965
960
955
2007 2008 2009 2010 2011
Production in Domestic Region
(Source : http://www.teaboard.gov.in/inner2.asp?param_link_id=41008)
Change in Production in Recent Years (Figures in Million Kgs)
25 22
20
15
10
4
5
0
2007 2008 2009 2010 2011
-5
-1
-10 -8
-15 -13
Change in Production
(Source : http://www.teaboard.gov.in/inner2.asp?param_link_id=41008)

4. Domestic Consumption of Tea in Recent Years (Figures in Million Kgs)
900 837 856
802 819
771 786
800 735 757
693 714
700 673
600
500
400
300
200
100
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Domestic Consumption
(Source : http://www.teaboard.gov.in/inner2.asp?param_link_id=41008)
Area under Tea in India (Figures in Hectres)
590000
578458 579353
580000
570000 567020
560000 555611
550000
540000
530000 521403
520000
510000
500000
490000
2004 2005 2006 2007 2008
Total Area
(Source : http://www.teaboard.gov.in/inner2.asp?param_link_id=41008)

5. (Source:
http://www.teaboard.gov.in/map-of-
india.html?param_link_id=730&mem_link_name=Tea%20Map%20of%20India)
AN OVERVIEW OF TATA TEA LIMITED

6. TATA Tea was set up in 1964 as a joint venture with a UK based James Finlay and
Company to develop value added tea.
From a mere share of 3% in the mid 70's to become India's second largest tea producer,
Tata tea has come a long way. (www.Tatatea.com)
The operations of Tata tea and its subsidiaries focus on branded product offerings in tea
but with a significant presence in plantation activity in India and Sri Lanka.
The Tata tea brand leads market share in terms of value and volume in India and has
been accorded the „super brand' recognition in the country.
Tata tea also has 100% export oriented unit manufacturing instant tea in the state of
Kerela, which is the largest such facility outside the United States.
AN OVERVIEW OF TETLEY
In 1837, two brothers, Edwards and Joseph Tetley started to sell tea and became so
famous that they set up as tea merchants.
In 1856, in partnership with Joseph Ackland, they set up “Joseph Tetley and Co.,
wholesale tea dealers”. Tea was rationed during World War II, it was not until 1953, just
after rationing finished, that Tetley launched the tea bag to the UK and it was an
immediate success. The rest, as they say, is history.
The tea bag had captured the public‟s imagination and desire for convenience. Within
10 years it revolutionized how Britons drank their tea and the old fashioned tea pot had
given way to making tea in a cup using a tea bag.
1974 Tetley Tea Company was bought by J Lyons who merged it with the Lyons tea
business to form Lyons Tetley. 1978 Allied Breweries acquired J Lyons‟ Businesses then
as Allied Domecq sold them in the 1990s.
The Tetley Group was created in July 1995, when a group of investors bought what was
then the world-wide beverage business from Allied Domecq.
On 10th March 2000, The Tetley Group was sold to Tata Tea Limited, one of the world‟s
largest integrated tea businesses.
After a long drawn out battle first with Schroder Ventures, followed by a bitter retreat in
1995, and then with Sara Lee, Tata tea finally tasted victory on March 10, 2000 when it
bought Tetley for a staggering INR2,135 crore ( 305 million sterling)

7. Porter’s Five
Force Analysis
Threat to New Entrants
Threat of New Entrants High Cost of Investment
FDI High Labor Cost
Untapped Rural Markets Unorganized Sector
Bargaining power of Rivalry among Existing Players Threat from Substitutes
Suppliers Approximately 700 Tea Coffee
Large number of Companies Pepsi
producers Unorganized Players Coke
Low switching cost Industry growth at 2% Energy Drinks
Bargaining power of Buyers
Large number of buyers
Product differentiation
Other Options available
Large number of
consumers

8. Industry Rivalry (High):
 There are approximately700 tea companies in India hence there is intense rivalry
amongst them.
 Market is dominated by a large number of unorganized players.
 Industry growth is slow at 2%.
Bargaining Power of Buyers (High):
 There are a large numbers of buyers purchasing the product.
 The bargaining power of buyers is extremely high as the buyers have many
options available.
Bargaining Power of Suppliers (Low):
 There are a large no of producers of tea in India.
 Supplier‟s product creates low switching cost.
Threat of Substitutes (Moderate):
 Substitutes available are coffee, juice, cold drinks.
 Existing customers are loyal
 Preference towards coffee can become a major threat because of increasing
café culture.
Threat of new Entrants (High):
 Large untapped rural market for branded tea segment in rural India
 FDI – 100% FDI in tea business.
Barriers to New Entrants (Moderate)
 High cost of doing business because of the time it takes to grow and become
ready for sale.
 High labor cost
 Unorganized sector can be a barrier to certain extent by lowering the
attractiveness of he industry.

9. PEST Analysis:
Political factors Economical Socio – Cultural Technological
factors factors factors
• Government  Interest • Lifestyle  New Machinery
Policy Rates Changes  Advertising
• Foreign Laws • Language through Internet
• Stability of the
Government
POLITICAL FACTORS
Government Policy
The political arena has a huge influence upon the regulation of businesses, and
the spending power of consumers and other businesses. Non-alcoholic beverages fall
within the food category under the FDA. Here the Government plays a role within the
operation of manufacturing these products in terms of regulations. There are potential
fines set by the government on companies if they do not meet a standard of laws.
Stability of the Government
Political conditions, especially in international markets, including civil
unrest, government changes and restrictions on the ability to transfer capital
across borders.
Foreign Laws
Companies‟ ability to penetrate in developing and emerging markets, which
also depends on economic and political conditions, and how well they are able to
acquire or form strategic business alliances with local bottlers and make
necessary infrastructure enhancements to production facilities, distribution
networks, sales equipment and technology.

10. ECONOMICAL FACTORS
Interest Rates
Marketers need to consider the state of a trading economy in the short and
long-terms. Rate of interest raises depressing business and causing redundancies
and lower spending levels. The company had challenging year due rising
commodity costs for tea and coffee and intense promotional competitors campaign
across key regions, but it did not affected company‟s profits. The Grou p reported a
year/on/ year sales growth al constant exchanges rates, because of strength of the
brands, improved performance by instant coffee and favorable impact of
acquisition. Profit from operations for the year was impacted by commodity cost
increases, investments behind the brands, product development, new market
launches. Tata l ea has reduction in consumer duty.
SOCIO-CULTURAL FACTORS
Healthier Lifestyle
The social and cultural influences on business vary from country to country.
Many people are practicing healthier lifestyles. This has affected the non-alcoholic
beverage industry in that many consumers are switching to herb drink and bottled
water instead of beer and other alcoholic beverages. The need for bottled water
and other more convenient and healthy products are in important in the average
day-to-day life. Consumers from the ages of 37 to 55 are also increasingly
concerned with nutrition. There is a large population of the age range known as
the baby boomers. Since many are reaching an older age in life they are becoming
more concerned with increasing their longevity.
Language
Language is another element which often requires adaptation in different
markets. Consumers generally prefer labels and instructions in their own
language. Sometimes brands and logos are translated as the source language
confers a certain prestige and image.

11. TECHNOLOGICAL FACTORS
Introduction of new Machinery
Technology is vital for competitive advantage, and is a major driver of
globalization. As the technology is getting advanced, there has been the
introduction of new machinery all the time. New technology help to develop new
products, for example comic vending machine launched in US recently to sell real
brew iced lea. Due to introduction of these new machineries the production of
Beverage Company‟s has increased tremendously than it was a few years ago.
The Company invested heavily in innovation and new packaging of the products.
Advertising through Internet
The effectiveness of company's advertising marketing and promotional
programs. The new technology of Internet and television use special effects for
advertising through media. They make some products look attractive. This helps in
the selling of the products. This advertising makes the product attractive. T his
technology is being used in media to sell their products.

12. IFAS of TATA TEA (Before Merger)
Strengths’ Weights Rating Weighted Score
Plantations 0.16 4 0.64
Brand Name 0.15 2 0.30
Strong Management 0.15 3 0.45
Weakness Weights Rating Weighted Score
Weak Distribution 0.18 3 0.54
Channel
Lack of Technology 0.16 3 0.48
available
Less or No Global 0.20 2 0.40
Presence
Total 1 2.81

13. IFAS of TATA TEA (After Merger)
Strengths’ Weights Rating Weighted Comments
Score
Market 0.15 4 0.6 With a value share of 21.4%
Leader in 2010, Tata Tea is now the
market leader in the
Rs7,000-crore branded tea
market, having overtaken
peer Hindustan Unilever
(HUL)
Resources & 0.13 3 0.36 Tata Tea Limited owns
Capabilities approximately 51 tea estates
in the states of Assam, West
Bengal, and Kerala in India.
Having plantations in varied
agro-climatic zones enables
Tata Tea to cultivate distinct
tealeaves. In addition, it also
have a big R&D
infrastructure
Brand Name 0.12 3 0.36 Tata tea Brand is ranked the
second most trusted
beverage brand in brand
equity. The company's best-
selling brand is Agni which
caters to the mass segment
and other brands include
Tata Tea Gold, Chakra,
Gemini and KananDevan
Experience 0.11 3 0.33 Tata Tea has been one of
the oldest companies in India
and has the advantage of
skill and experience on their
side
Strong 0.14 3 0.42 Tata tea has the access to
Management highly efficient management
pool from Tata group
Presence in 0.15 4 0.60 Present in every contient of
more than 40 the world.

14. Weakness Weight Ratin Weighted Comments
s g Score
No product 0.15 4 0.60 One of the major problems
differentiatio Tata Tea faces is the lack of
much product differentiation
n
hence loyalty of consumers
is a major area of concern
Distribution 0.05 3 0.15 The distribution network of
Network Tata Tea comprises on 1.25
lakh distributers this is not
much when you compare to
HUL who have the strongest
dealer network in the country
Total 1 3.42

15. Tata Tea
Tata Global Beverages (formerly known as Tata Tea) is an Indian Multinational
Non Alcoholic Beverage Company headquarter in Kolkata, West Bengal. It‟s a
subsidiary of Tata Group. It is the world‟s second largest manufacturer and distributor of
Tea.
The merger was also important for Tata Tea, because its main competitor
in India, Hindustan Levers Limited (HLL), a Unilever subsidiary, was gaining market
share and also because overall growth of the tea market in India had slowed. Tata Tea
acquired the Tetley Group for £271 Tata Tea used a leveraged buyout structure to
acquire Tetley, with the hopes that the cash flows from Tetley would repay the leverage
over time.
History
1964 Tata Creates alliance with UK based giant James Finlay to form TATA
FINLAY
1983 Tata Tea is born, Finlay is bought out
1991 Tata Tea enters Brand business
2000 Tata Tea acquires The Tetley Group
2001 Tata Tea acquires Good Earth, USA
2006 Tata Tea acquires Eight O‟Clock Coffee, USA
Tetley acquires Jemea in Czech Republic
Tetley acquires 33% stake in Joekels Tea, South Africa
2007 Tetley acquires Polish Tea brand Vitax
2009 Tetley acquires Grand Coffee, Russia
2011 Tetley increases stake in Joekels Tea, it now a subsidiary business

16. MAJOR TEA PLAYERS
TATA HUL Duncun Goodricke Others
TEA Group Group
Tata Tea Red Label Sargam Goodricke Wagh Bakri
Agni Taj Mahal Double Zabardast Tez
Tata Tetley Taaza Diamond Castleton Jayshree Tea
Chakra Gold Lipton Green Shakti Caddy

17. Substitutes for Tea

18. Technology used in Tea Manufacturing
PLANTATIONS
PLUCKING & LEAF HANDLING
WITHERING
ROLLING
FERMENTATION
DRYING
SORTING

19. Structure of Merger
Tata Tea Inc Tata Tea
60mn Rabo bank
Tata Tea GB Prudential
SPV Mezzanine Schroder
Capital Ventures
215 mn
Equity 70mn Debt 235 mn 10 mn 10 mn
10 mn
Tetley Legal Services & Tetley’s Working
Acquisition Bank Charges Capital requirements
271 mn 9 mn 25 mn
DEBT Repayment Structure
A B C D
Amount 150 Million 75 Million 30 Million 50 Million
Loan Type Long Term Long Term Long Term Revolving
Purpose Funding Funding CAPEX WC
Acquisition Acquisition Requirements
Year of Maturity 2007 2007 2008 2007
Pay Back Semi Annual 2 Installments 2 Installments Cessation of
Method Installments in 07-08 in 07-08 Credit
Interest rate 11% 11% 11% 11%

20. THE CHALLENGES
Tata tea was half the size of Tetley in terms of revenue and number of upper
management and so it feared a domination of Tetley's corporate culture.
Rising competition from African nations such as Kenya and Malawi, where
production of tea is new and expanding, posed potential threats to tea exporters
from India.
Dealing with diverse skill set, working Culture of employee and objectives of
both the organization.
Financial constraints such as legal and capital control in India that made the
listing of Tetley shares in India unattractive.
There is a great deal of concern of how British employees would react to Indian
manager as India was a part of former British Colony.
Adding to the woes was the fact that the Indian tea exports to Russia had been
continuously declining. In fact the exports to Russia fell drastically over the last
decade. In 1999, the exports were around 87million Kg, which was almost half of
160 million Kg exported in 1989.
The overall export also fell substantially. During the last fiscal itself, the exports
saw much volatility. The total exports fell of tea fell from 27,839 ton recorded in
August 1999 to 9,766 ton in February 2000.
The UK and the Ireland accounted for one-third of the world‟s tea consumption in
1955. However their share in tea consumption currently is around 5% only.
The tea prices have falling worldwide because of an oversupply in production.
While world market prices in real terms have declined the cost of production, on
the other hand, has increased steadily thereby putting pressure on the producer‟s
margins.
Big buyers like Russia, Iran and Iraq have become inactive due to political
reasons. Above all, the fact that Sri Lanka is selling tea to Russia at far lower
prices than India has also been causing major concerns.
How to Integrate: Tata decided that the best way to integrate was not to integrate
initially but to maintain a joint venture type of arrangement. Furthermost the
integration process was not rushed in order to protect Tata tea from risk of
Tetley‟s debt. TATA tea did not want to change that Tata tea until debt level was
manageable.
Size difference: Tata tea was half the size of tetley in terms of revenues and
number of upper management. Tata tea feared a domination of Tetley‟s
corporate culture.

21. Tata Tea Market after Acquisition
The market of Tata tea suffered a lot after the acquisition as it experienced disaster
financial performance. The company's overall sales was dropped by 8.3% and reached Rs
621.58 crore from Rs 677.86 crore.
Also operating profit was dropped down by 19.37% and reached Rs 121.43 crore
from Rs 150.60 crore. Market share price considerably dropped within a year.
Though the acquisition of Tetley was seen negatively by the market for the next 3
years, Tata tea cautiously chose the approach of integrating the processes and exploring
synergies between the two companies with absence of any time pressure, while maintaining
operational independence.
For this, the overall emphasis was on growth rather than cost reduction. Also a
structure that supports joint working in several areas was adopted. A thoughtful process
was adopted for integrating the two companies with some of the highlight being:
Identification of common belief: An international consulting firm was
commissioned to identify the common belief between the two companies and
suggest ways to bring them closer.
Creation of structure: A strong culture was developed to create a group that
includes steering committee, their task forces and managers of both the
companies.
Refinement of structure: Tata Tea adopted the hierarchical structure and
assigned responsibilities to every level from top to bottom.
Financial restructuring done by Tata Tea
Tata tea changed their orientation from producing tea company to selling tea
company as they realized that the level of profit can be increased by selling high quality
branded tea products rather than owning plantation.
To execute their restructuring process, Tata tea decreased its total wage payment by
12.5%, provident fund payment by 43% and welfare payment by 40%. Also Tata tea also
reduced its employee strength from 58,888 workers to 34,596 workers

22. Current Positioning of Tata Tea
After the financial collapse in the year 2000, Tata Tea is now moving forward toward
the growth. Currently share value of Tata tea has moved up to Rs 700 per share.
Tata tea has been ranked as the most trusted beverage brand in India (The
Economic Times, 2007) The company's marketing strategy of focusing on
continuous innovation in all direction of brand marketing and sales, has helped Tata
Tea to achieve excellent growth in recent years (Ms Sangeeta Talwar, Executive
Director-Marketing, Tata tea Limited).
TATA TETLEY
 Merger implications:- Position in the value chain 305 mn GBP
Tata Tea –pre acquisition:-40% of turnover came from packet tea /tea bags
Tetley – pre acquisition:- 100% of turnover came from tea / tea bags
Consolidated – post acquisition:- Company has moved up the value chain-84% of
turnover came from packet tea/tea bags.
 Merger Implications:- Increased Outsourcing
Tata Tea –pre acquisition: Produced 95% of its tea requirement in- house
Tetley – pre acquisition :Outsourced entire requirement from 35 different countries,
with an estimated Procurement of 3 million kilograms of tea every week
Consolidated – post acquisition: Today, 70% of Tata Tea‟s tea requirement is
outsourced from 20 different countries, thus reducing the risk associated with
fluctuation in production arising out of various factors.
Merger Implications:- Predictable Margins
Tata Tea –pre acquisition:- Margins highly correlated with tea cycle
Tetley – pre acquisition:- Margins inversely correlated to tea cycle
Consolidated – post acquisition- Margins hedged
 Merger Implications:-Global Footprint
Tata Tea –Pre acquisition :Predominantly domestic operations
Tetley – pre acquisition: UK and USA account for bulk of sales.
Consolidated – post acquisition :Global presence

23. Revenue by Geography;
Geography Sales Revenue (Rs. Lakhs)
India 150816.83
UK 123942.34
USA & Canada 144671.83
Rest 65356.48
Total 484787.48
13.48
31.11 India
29.84 UK
25.57 USA & Canada
Revenue % Rest
Restructuring the debt (28th Feb 2003)
In order to reduce the burden, the interest payment burden promoters (Tata Tea and Tata
Sons) infused £30 m in June 2001 and retired £20 m of high-cost debt taken at 18%. This
increased the equity base of the company from £70-million to £100-million. It helped reduce
its debt equity ratio to 1.7:1.

24. Details of the transaction (2003):Single-tier debt: The existing debt of £171m (comprising
£114m of senior debt, £49m of mezzanine debt and £8 million of secured loan stock debt)
has been repaid and, simultaneously, a fresh debt for a value of £174 million, all of which is
senior debt, has been raised.
 Tranche 'A' is of £90m and is subject to bi-annual repayment over seven years.
 Tranche 'B' and 'C' are of £42m each with bullet repayment between seven to nine
years.
 350-bps reduction in interest cost: The weighted average interest cost will reduce to
6.7% from 10.2%, thereby saving approximately £ 6m per annum in future interest
costs.
 Of the total debt, about 2/3rd has been switched to fix LIBOR while the balance is at
floating rate.
 All debts continue to be ring-fenced with no recourse to Tata Tea, whereby the
banks will have rights only on the assets and cash flow of the Tetley Group.
 Implications of debt restructuring: The debt restructuring has been possible owing to
an improvement in the financials and a fall in the interest rates, thereby leading to a
re-negotiation of better terms with lenders. There is no change in the debt: equity
ratio which is 1.7:1 (excluding quasi-equity) / 2.9:1(including quasi-equity).
The restructuring will have a two-fold benefit:
Interest saving of £6 m per annum
Re-negotiation of the covenant structure has eased pressure on the company. The
management now has relatively more freedom to plan its long-term investment and
growth strategy.
The refinancing of high-cost Tetley debt in favor of LIBOR-linked rates has resulted in a one
percent reduction in the cost of debt.

25. Sales of Tata Tea (Figures in Crores)
Sales of Tata Tea
2500
2000
Axis Title
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Sales 899 810 750 812 820 981 1058 1297 1415 1540 2090 1966 2222
(Source: http://www.moneycontrol.com/financials/tataglobalbeverage/balance-sheet/TT#TT )
PAT of Tata Tea (Figures in Crores)
PAT of Tata Tea
450
400
350
300
Axis Title
250
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
PAT 124 100 72 70 91 129 187 306 312 159 391 180 302
(Source:http://www.moneycontrol.com/financials/tataglobalbeverage/balance-sheet/TT#TT )

26. FLAVOUR OF SYNERGIES
In the backdrop of the difficult domestic scenario and dwindling exports to Russia
is was not difficult to conclude what prompted Tata Tea to go for an acquisition, that too
at such INR1900 crore of sales, on the other hand, Tetley was supposed to benefit from
Tata Tea's competencies in managing plantations and processing units. Tata Tea
though didn‟t have expertise in blending and branding. It was here that the acquisition
was coming handy to Tata Tea, as Tetley had proven expertise in the area of product
innovation and in sourcing tea from auction houses and which also was a major
blending and packaging company and owns a host of well-known international brands
which the latter can leverage.
Tea is usually exported at a relatively early stage in the production chain and
blending and packing, the most lucrative part of the tea trade, is mostly done by the tea
companies in the buyer country. The large profits therefore don‟t accrue to the tea
producing countries. The big money is made abroad. In Europe, 30% to 50% of the
consumer price of tea goes to blending, packaging, materials and promotion. It was
there that the acquisition would help Tata Tea to take advantage of the existing scenario
by virtue of Tetley‟s proven skills an blending and branding, not to mention exotic
packaging, which too fetches higher premiums. Also, many producers try to sell
processed tea bags or repacked consumer units, but the export of ready-for-use tea is
often hampered by poor market information and the absence of funds for expensive
marketing strategies.
It could be rightly said then that the deal was supposed to bring together the two
companies, one of which was the largest integrated tea company (Tata Tea) in the
world, while the other world's largest brand (Tetley). Together they make a world-class
integrated outfit. But the rival Unilever was not far behind either. In fact, it became even
more aggressive after the Tata Tea- Tetley deal came through. The Unilever through its
Indian outfit HLL acquired Rossell Industry's tea gardens, and stepped up efforts to
vertically integrate its operation by acquiring some more tea garden in India and African

27. nations like Kenya, Uganda and Mozambique.The deal was supposed to facilitate
downstream segment also.
Tata Tea has over 60 tea gardens in India and Sri Lanka, besides its own
blending and packaging units. Tetley on the other hand, buys tea from the major auction
markets of the world and processes them to be sold under its own brands like Earl
Grey, English Breakfast and Traditional Afternoon - in the US, Canada UK and
Australia. Both the companies were supposed to streamline their downstream
operations quite efficiently thereby cutting the costs. Tetley plans to give special thrust
to the US market, which has been fast emerging as a growing tea market, with
consumers shifting from coffee to tea due to health reasons. This is turn was thought to
help Tata Tea to push greater volumes in the instant tea segment, where it had so far
struggled to get a strong foothold.
In the domestic market, on the branding and packaging front, there has been a
major Strategic shift towards brand consolidation. In fact, with increase in the value
added segments over the years, the share of this segment has risen quite significantly.
The value additions, through changes in the product forms, branding, consumer
awareness and delivery systems, which has been part of the winning tool in the
international markets was bound to be replicated in the Indian markets too. And it was
there that the Tata Tea - Tetley combine's wider product portfolio downstream would
complement the upstream synergies. As while, Tata Tea catered primarily to the lower
end of the market segment, Tetley had presence in the premium segment. Apart from
that, adding to Tata Tea's brand strengths in developing packaged tea was Tetley's
well-entrenched presence across a wider range of categories such as decaffeinated,
herbal, lemon tea, and tea bags, etc.
As far as other major benefits from the deal were concerned, the domestic
company can benefit from the standardized management practices including quality
performance norms and consumer focus of Tetley, the world leader in tea bags. This
was supposed to be more so when new products are envisaged for the Indian markets.

28. On the other hand, Tata Tea's strong R&D base and expertise in tea cultivation
and manufacturing was immensely helpful to Tetley. Post-acquisition, the decision was
that the two organizations work under a unified global strategy. The combine strengths
were thought to be helpful to create opportunities to expand sales in both the existing
and new markets and realize synergies. Apart from that, the two companies‟ breadth of
experience and vertical integration was equipping them to compete anywhere in the
world and that assumed importance in the context of WTO, which would terminate tea
import curbs under its predetermined timeframe.
The joint buying power and commercially relevant use of tea produced by Tata
Tea was also supposed to facilitate cost control. Also among the other immediate
priorities was the strategy to increase tea bag sales in East Europe and to improve upon
the currently token presence of Tetley in the packet tea segment. On the product size,
Tetley proposed to promote the draw size string bags in a bigger way, because of the
higher margins and planned to replace all the round tea bags cartons with an innovative
soft-pack format then.
Another area that Tata Tea was eyeing was the private label tea business in the
UK. Tetley which holds sway over the market, with 6 out of every 10 retailers sourcing
tea from it to sell under their own brand names, was a perfect launch vehicle to push
greater volumes into that highly lucrative segment, more so when its exports to the
Russian markets had been had been on a continuous decline. The key reason why the
private label was lucrative was that there were no marketing costs attached to it. That
meant, by sourcing tea directly from its 26,000, hectares of gardens, or from the auction
markets, Tata Tea would be able to boost its margins.
The acquisition impact on Tata Tea's presence in the global tea trade aside,
Tata-Tetley ltd., the already existing joint venture between the two companies, was
seen aligned with the group‟s international operations. Equally significant was the
domestic company's plan to open an instant tea factory in South India, which was
improved for the instant tea shipments to the US, where Tetley had a major presence.

29. Tata tea hoped to garner greater market share and stave off the competition,
riding on Tetley's strength. Acting swiftly, Tata Tea initiated a comprehensive operation
restructuring of the world‟s second-largest tea company, in a bid to move a step closer
to unseating Unilever Plc. The restructuring took forms of the broader plan to venture
out into new market in East Europe, Russia, the CIS and West Asia through both the
joint venture and franchise route. The move was critical to increasing the UK based
transitional earnings potential as Tata Tea had leveraged the company‟s future cash
flows to fund the 271 million pound acquisition.
Comparison of HUL and TATA Tea Ltd.,
Profitability of Hindustan Lever LTD
Total
YEAR Net Sales Net Income Assets ROA Total Equity ROE
(INR (INR (INR % per (INR % per
millions) millions) millions) year millions) year
2001 67441 14188 39563 36% 304369 5%
2002 71232 17358 40423 43% 365887 5%
2003 74103 24359 34198 71% 209270 12%
2004 77002 22483 36157 62% 213872 11%
2005 88632 23870 42118 57% 209270 11%
2006 96820 24240 40300 60% 230562 11%
2007 105447 22050 48553 45% 272348 8%
ROA is calculated as net income/total assets.
ROE is calculated as net income/total shareholders‟ equity.

30. Profitability Of TATA TEA LTD.
Total
YEAR Net Sales Net Income Assets ROA Total Equity ROE
(INR (INR % per (INR % per
millions) millions) (INR millions) year millions) year
2001 67441 89116 146923 61% 89698 99%
2002 71232 81606 15230 536% 96799 84%
2003 74103 80648 154024 52% 97863 82%
2004 77002 83845 142017 59% 97524 86%
2005 88632 95024 152908 62% 104897 91%
2006 96820 104017 169743 61% 116126 90%
2007 105447 114611 270461 42% 156555 73%
From the above chart one can clearly observe the significant increase in the sales, which
had grown gradually from INR 68772.00 millions in the financial year 1997-98 to INR.
105447.00 million in the financial year 2006-07.Hence one can conclude that the acquisition
activity contributed an increase in sales volume.
Before Merger:
TATA TEA TETLEY
Turnover $207million $417 million
operating profit $36 million $42.6 million
Employees 59740 110
Tea Estates 54 0
Britain, Canada,
Key Market India Australia, US

31. After Merger:
Merger Tata tea Tetley Pre
Implications acquisition acquisition Consolidated Post acquisition
40% of
Position in turnover came 100% turnover Company has moved up the
the value from packed came from packed value chain 84% of turnover
chain tea bags tea bags came from packed tea bags
outsourced entire
requirement from 35 today 70% of TATA Tea
different countries requirement is outsources from
produced 95% with an estimated 20 different countries thus
of its tea procurement of 3 reducing the risk associated
Increased requirements in million kgs of tea with fluctuations in production
outsourcing house every week arising out of various factors.
Margins highly Margins inversely
Predictable correlated with correlated to tea
margins tea cycle cycle Margins hedged
UK and USA
Global Domestic account for bulk
footprint operations sales Global presence
The financial performance of Tata Tea improved though at a slow rate and both ROA
and ROE had been positive so far.
CULTURE
Initially, culture was a huge issue and had to be handled very carefully. For
example, Tata executives would complain about being kept waiting when visiting
Tetley‟s UK head office reception centre, despite being the senior partners. Meanwhile,
Tetley people would complain about being run by Tata which knew only about India and
nothing about Western markets.
Management
The companies were different but were learning from each other. For instance,
Tetley is very process oriented while Tata Tea is quicker to respond and more action
oriented. Tata was quite aware that it needed to be sensitive to the potential cultural
challenges of combining the two groups.

32. Objectives of companies:
Tata had dual emphasis on plantation and domestic marketing. Tetley focused
on global marketing.
Geographical spread:
Tata Tea is mainly present in Asian Sub continent and its business focus on bulk
tea. Whereas Tetley was into brand marketing with a sizable international presence.
Differences in skills:
Tata Tea is a plantation company whose major strengths were managing the
estates, dealing with a huge work force, and making teas. On the other hand, Tetley is
strong in
buying quality teas all over the world, in blending, in packaging innovation and combine
good logistics with management skills.
Branding:
Both companies had very strong brand names in their respective regions.
INTEGRATING:
A executive board fumed with 6 people from both companies to plan and devise
the integration plans. Simultaneously a board of non-executive members were formed
who were neutral with the objective of introducing Tetley in India.
Also as last and final measure individual committees were formed to look at scope for
integration in different areas like Commercial business, Supply chain, IT team etc.

33. However, as planned the synergies of the companies were not so strong.
For most part it was quite impossible to fuse the working of Tata Tea and Tetley
together as they both had different structures
Tetley focused on producing tea the packaging and selling, whereas Tata
focused on producing tea in own plantations and then selling.
Tetley was a global brand and hence had more standardized product mix, which
focused on quality, whereas Tata was a Asian brand and as per customer
preference focused more on making product as per local taste.
Hence apart from exchange of R & D and technological know – how, and help to
grow in each other market both the companies could not be integrated to achieve
better results. Hence the CEO of both the companies felt that allowing
independent operation for both the companies along with a kind of Co-integration
alliance.

34. Mergers & Acquisitions
Merger
Of
“TATA & Tetley”
Submitted To: Prof. Tazeentaj Mahat
Submitted By: (Group 3)
Laxmi. C
Bibi Asma
Hardeep S. H
Jervin.J
Shekher.G