Tata Tea scrip up on Glaceau buzz

Coke looking to buy US firm; may lead to Tatas selling their stake.

Shares of Tata Tea, India's second-largest tea company, surged 14.8 per cent today on reports that cola major Coca-Cola is planning to acquire US company Energy Brands International, commonly known as Glaceau, in which Tata Tea holds 30 per cent.

According to reports in the international media, Coca-Cola has reportedly valued the maker of the Vitaminwater brand at about $3 billion, higher than the $2.25 billion valuation by the Tata group in August last year when it acquired 30 per cent for $677 million.

Tata Tea shares closed at Rs 773.35 on the Bombay Stock Exchange, against the previous close of Rs 673.70. The stock hit an intra-day high of Rs 781.

Industry analysts explained this by saying that Tata Tea may look at exiting Glaceau at a significant premium to its initial investment if Coca-Cola decides to acquire a majority shareholding in the company. When contacted, Tata Tea declined to comment.

Glaceau founder J Darius Bikoff, his family, associates, and distributors hold about 50 per cent in the company, while the remaining 20 per cent is held by venture capital funds.

The initial agreement signed between Glaceau and the Tata group provides for a further 10 per cent increase in stake by either Tata Tea or Tata Sons, though no specific duration has been assigned.

Tata group chief Ratan Tata is the chairman of Energy Brands, while R K Krishna Kumar, vice-president, Tata Tea, is also on the company's board.

The Glaceau board was meeting to discuss the issue at the time of going to the press.

A Mumbai-based analyst of the fast moving goods sector said that if Coca-Cola was indeed considering acquiring a majority stake in Glaceau, it would not make sense for Tata Tea to stay invested in the company.

"The company is already servicing a significant amount of debt on account of this acquisition and revenues through dividends are not expected for another couple of years," the analyst said.

While Tata Tea is keen on becoming a bigger player in the larger beverage space, this possible acquisition by Coke may hamper its plans. In addition to equity, Tata Tea has access to Glaceau's widespread distribution network for other brands in its portfolio.

For Coke the move fits in with its strategy of reducing its dependence on its carbonated beverages portfolio and moving towards healthier offerings. Glaceau has a range of "wellness" beverages like the nutrient-enhanced Vitaminwater, electrolyte-enhanced Smartwater, and flavour-enhanced Fruitwater.

At the time of the acquisition, the company had said it had doubled its revenues in the past two years and was looking at sales of $700 million next year.