A fresh round of consolidation is in the offing at the Tata group. India’s largest private conglomerate is looking to integrate some of its smaller businesses with their respective flagship companies, with a view to leveraging the value of the entities and increase cost efficiency.
The earliest of the consolidation could be the merger of Tata Coffee and Mount Everest Mineral Water with Tata Tea; Rallis with Tata Chemicals; Tata Teleservices (Maharashtra) with Tata Teleservices; and Tata Sponge Iron with Tata Steel, two executives familiar with the development said.
The idea has been discussed in at least two recent board meetings of Tata Sons — the holding company of the group, and also at the individual company level, an executive with the group said.
| THE URGE TO MERGE (Merger candidates in the Tata group) | |
| MOTHER FIRM | SIMILAR BUSINESSES |
| Tata Tea | Tata Coffee and Mount Everest Mineral Water |
| Tata Chemicals | Rallis |
| Tata Teleservices | Tata Teleservices (Maharashtra) |
| Tata Steel | Tata Sponge Iron and few others |
| Retail (functional integration) | Trent (Westside), Infiniti Retail (Croma), Titan & Tanishq |
“The group is looking to appoint external agencies to study the possibilities of mergers or consolidation,” he added.
Asked about the consolidation process, a Tata group spokesman said, "Tata Sons does not wish to comment on such speculation."
The fresh round of consolidation would be the second such exercise after Ratan Tata took over chairmanship in 1991. Though the exercise saw the number of companies fall to 96 from over 250, the group still has over 300 subsidiaries in 40 businesses spread across various parts of the globe.
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“The consolidation is intended to ring-fence businesses from economic instabilities. At the peak of the downturn, the smaller businesses had struggled and many of them posted losses. The new merger initiative will help the major Tata companies scale up operations and enhance bargaining power,” said another source outside the company.
Tata Tea is in the process of creating a new enterprise with a turnover of $10 billion, 10 times the current figure, by 2014. It is in the process of creating a new brand for its beverages business, giving emphasis to smoothies, juices and so-called “functional drinks”, in addition to tea and coffee.
About Tata Coffee’s merger with Tata Tea, Vice-Chairman R K Krishna Kumar recently said, “Our vision is to have one cohesive company.” Shares of Mount Everest Mineral Water, a low-profile Tata group company, have been rising following market buzz that the promoters have been accumulating shares through creeping acquisitions. Last month, Tata Tea acquired 55,000 shares to raise its stake to 40.3 per cent, which was 33 per cent as on September 2008.
Rallis and Tata Chemicals have some common lines of businesses, offering synergies in terms of complementary products.
Last month, Rallis announced preferential allotment of 980,000 lakh shares to its promoter Tata Chemicals. The preferential allotment will increase the promoter holding by less than five per cent in the financial year 2010. Tata Chemicals emerged as the single largest shareholder of Rallis after it purchased 35.68 per cent stake from its group companies such as Tata Tea, Tata Sons, Tata Investment Corporation and Ewart Investments in August.
The merger of Tata Teleservices (Maharashtra) with Tata Teleservices is also being considered by the group, but it could take time as the Maharashtra operator is a listed entity. Earlier this year, Japanese telecom major NTT DoCoMo picked up 26 per cent stake in Tata Teleservices and later 12.12 per cent stake in Tata Teleservices (Maharashtra) also. The move indicates a possible merger, said sources.
Tata Steel, which is integrating its operation across the globe including Corus, NatSteel and Tata Steel (Thailand), has also discussed merging Tata Sponge Iron and other similar companies with it, said sources.
Tata group also plans a functional integration of its retail formats like Westside, Croma, Tanishq and others. Krishna Kumar recently said the different retail formats will be integrated at a "functional level" to share experiences and expand know-how within the business.
“Consolidating the value, which is dispersed between the companies, will leverage the balance sheet and debt raising capacity. Also, this improves the credit ratings when a company goes for debt or bond issues,” said an expert with a law firm.
The group, which has 98 companies, had streamlined its companies under seven business verticals such as information systems and communications, automotive and engineering, metals, services, energy, consumer products and chemicals. It also sold its soap, cosmetics and publishing interests about five years back as part of its plan to exit disparate businesses.