Glaceau sale a killing for Tatas

Tata Tea makes profit of $523 million on stake sale.

Fund managers can take tips from Ratan Tata. The Tata Sons chairman announced in August last year group company Tata Tea's purchase of 30 per cent equity in US-based Energy Brands Inc for $677 million.

With Atlanta-based beverage giant Coca Cola's decision to acquire Energy Brands, also known as Glaceau, for $4.1 billion in cash, Tata Tea stands to get $1.2 billion for its holding, which it has decided to sell. The $523 million gain works out to a neat 77 per cent return in nine months.

With its share price soaring 35 per cent since April 25, when reports of Coke's interest in Glaceau first came in, Tata Tea's market value has risen by more than Rs 1,400 crore. Today's announcement sent its stock to an all-time high. (See chart.)

The appreciation on the investment is only the tangible gain. In a conference call, Tata Tea Vice-Chairman R K Krishna Kumar said the company had gained a pool of knowledge in the enhanced beverage sector of the dynamic US market in the last 8-9 months.

This will come in handy since Tata Tea has identified the beverage segment and the US market as its focus.

Kumar, stating that relations between the Glaceau management and Tata Tea remained cordial, said he would not rule out a tie-up for joint product development with Coca-Cola.

The deal with Coca-Cola is expected to be completed in October. Only then, said Kumar, would Tata Tea take a call on what to do with its windfall.

One option would be to make Tetley, acquired a few years ago and ridden with $600 million worth of debt on its books, a debt-free company. Or, the money could be utilised for another acquisition.

Kumar said Tata Tea had zeroed in on some potential acquisitions and the deal could involve a company in the US or India.

"The deal flow across the globe is very strong...Hopefully very soon...." He refused to confirm or deny rumours that Tata Tea was eyeing Himalayan Natural Spring Water.

One of the reasons behind Tata Tea's exit from Glaceau was that it was a "minority shareholder".

"As a minority shareholder, we did not want to stand in the way of the company's decisions. That's not the Tata style. If we had 100 per cent in Glaceau, our response would have been different," said Kumar.

Tata Tea had two berths on the Glaceau board, with Ratan Tata as the non-executive chairman and Kumar a non-executive director.