Tata Tea in India Inc's biggest buy overseas

Firm picks up 30% in US water company for $677 million.

Tata Tea's power brew is getting stronger. In the biggest overseas acquisition by an Indian company, Tata Tea today announced the acquisition of a 30 per cent stake in the US-based Energy Brands Inc (EBI) for $677 million (nearly Rs 3,148 crore), jointly with its promoter Tata Sons.

With this, the world's second-largest branded tea company has beaten Dr Reddy's Laboratories' takeover of betapharm for Rs 2,668 crore. Of the top 10 overseas acquisition deals so far, five have been by Tata group companies. (see table.)

According to a definitive agreement signed today, Tata Tea and Tata Sons would purchase the shareholding of TSG Consumer Partners in speciality water company EBI, commonly known as Glaceau in the US.

Post-acquisition, the Tata group will nominate the chairman of EBI, and have two nominees on the board. The US company is also planning an IPO in two years.

The New York-based company has several best-selling brands in the US like Glaceau Smart Water, Glaceau Fruit Water & Go-Go Action Drinks. Energy Brands is Glacéau's parent company.

Glacéau was founded in 1996 by J Darius Bikoff, who is also the CEO of the company, and has seen compounded annual growth of 200 per cent since its inception, with over five million bottles being sold every day.

The Tata group will infuse $250 million towards equity, while the balance will be mobilised through debt. Of the equity portion, Tata Tea and Tata Sons will bring in $192 million and $58 million, respectively. The Tata group will execute the deal through Tata Tea GB, the investment vehicle for all overseas acquisitions of Tata Tea, including Tetley.

The boards of directors of Tata Sons and Tata Tea approved the deal at separate meetings today.

Rabobank International is the sole financial advisor for this transaction. Shearman & Sterling LLP are serving as transaction counsel to the Tatas, and Debevoise & Plimpton LLP to Glaceau.

The Tata Tea stock closed at Rs 827.90 today, 2.22 per cent lower than yesterday's close of Rs 846.70, in a weak Bombay market.

RK Krishna Kumar, vice-chairman, Tata Tea, and director, Tata Sons, told reporters in a late evening conference call that the proposed entry into the enhanced water market was well-thought-out.

"In the US and Europe, the carbonated soft drink market has been on the decline, while the black tea market has been stagnant. On the other hand, the speciality tea market has been growing, where Tata Tea already had a strong foothold through its recent acquisitions. The enhanced water market will be another growth vehicle for the company in the coming years."

The growth in the enhanced water market is visible from the performance of EBI, which posted a 100 per cent increase in sales last year.

Kumar said he expected the company to post sales of $355 million this year, which would almost double to around $700 million next year.

"Glaceau is part of a very strong business. It will help us expand our beverage business in North America," he said.

The Tata group has been in the US since 1945. He said the Tata group might scale up its holding in EBI, and the valuation of the company might be enhanced if it went in for an IPO in the future.

During the last two years, Tata Tea has acquired speciality tea companies such as JEMCA in the Czech Republic, and Good Earth and Eight O' Clock (through its subsidiary Tata Coffee) in the US . It has also entered Bangladesh and Pakistan through joint ventures.