Tata Tea keeps right to buy Mount Everest

Tata Tea, which announced its intent to acquire the management control of Mount Everest Mineral Water for Rs 140 a share last week, reserves the right to purchase the remaining stake of the promoters after six years at a maximum price of Rs 250 a share.

According to an agreement signed between Tata Tea and the promoters of Mount Everest, the former reserves the option to purchase 31.10 million shares from the latter, representing 9.14 per cent stake in the enhanced equity, after six years. Salim Govani and Vinod Sethi are the promoters of Mount Everest.

The price of exercising the option will be a minimum of Rs 140 a share compounded by an interest of 10 per cent a year with a maximum limit of Rs 250 a share. The Mount Everest stock today closed at Rs 124.95 on the BSE, 6.55 per cent lower than its last closing.

The put option will trigger if the company's net sales are less than Rs 200 crore in the financial year ending March 31, 2013. The company posted net sales of Rs 16 crore in 2005-06.

The sellers "" Govani and Sethi "" will enjoy the right to sell their shares even before six years, if any of these scenarios materialise: one, change in control at Tata Tea; two, Tata Tea ceasing control of Mount Everest; and, three, Mount Everest merging with any other company.

The promoters of Mount Everest will get a non-compete fee of Rs 3 crore for keeping themselves away from the water business for one year after the termination of the share agreement.

Priced at Rs 140 a share, the mandatory 20 per cent open offer for Mount Everest will open on July 27. Prior to that, the Mount Everest shareholders will meet on July 2 at an extraordinary general meeting to consider Tata Tea's proposal to acquire 24.15 per cent stake in the company by direct purchase of shares from the promoters and subscription of preferential shares for Rs 140 a share. The offer will close on August 16.

The acquisition gives Tata Tea, which is in the process of transforming itself from a tea company to a beverages firm, entry into the country's growing beverages market. The Rs 1,600 crore beverages market, which is growing at over 30 per cent, is dominated by Parle Bisleri, Pepsi and Coke.

Parle Bisleri, which sells under the Bisleri brand, is the market leader. Coca-Cola's Kinley and Pepsi's Aquafina brands are also catching up. Tata Tea, at the time of pulling out of the Glaceau deal two weeks ago by selling its stake for $1.2 billion, nearly twice the amount it paid to buy 30 per cent 10 months ago, said it would use the money for purchases in the US and India.

Mount Everest Mineral Water shares, however, plummeted to the maximum permitted level today.

The scrip hit the lower circuit of 5 per cent to Rs 124.95, much below Rs 149 a share offered by Tata Tea to acquire 20 per cent through the open offer. Tata Tea's open offer comes after it announced the deal to buy 26 per cent in the company for $52 million.

"From the beginning of March to mid-May, the shares of Mount Everest went up from Rs 75 to Rs 130 a share. The correct price lies between the two," said an analyst.