Likely to merge mineral water firm with itself
Aimed at consolidating similar businesses under a single roof, Tata Tea, which had gradually increased its stake in Mount Everest Mineral Water over 10 months, has now acquired management control, with a 50.24 per cent stake.
Insiders say Tata Tea is now likely to merge the mineral water company with itself.
Tata Tea’s consolidation drive, say analysts, will create one holding company with various divisions such as tea, coffee, water, juices and energy drinks. The likely merger would pave the way for a uniform corporate brand, with sub-brands for each division.
Tata Tea acquired 26 per cent stake in Mount Everest in 2007 for Rs 115 crore. It later made an open offer for up to 20 per cent of equity at a price of Rs 140 a share. When it did so, the market capitalisation was Rs 476 crore (at Rs 140 a share). This has fallen to Rs 210 crore, given the latest transaction price of Rs 61.7 a share, due to the global economic downturn and related market decline.
Analysts believe this is the right time for Tata Tea to increase its stake in Mount Everest, as the share continues to trade below its expected value. The stock of Mount Everest closed at Rs 69.85 on January 18, marginally up from the previous day’s close of Rs 69.70. Tata Tea’s stock was down 0.65 per cent, having closed at Rs 1,030.50 from the previous day’s close of Rs 1,037.20.
The beverage company has enough cash on its books, especially after its 30 per cent stake sale in Energy Brands Inc (known as Glaceau), to Coca-Cola, for Rs 4,900 crore, in 2007.
Company officials declined comment on the merger of Mount Everest with the company. Sources in the know insist it will happen. They say it will be in keeping with the Tata Group policy of integrating smaller businesses with their respective flagship companies, to leverage the value of these entities and increase overall cost efficiency.
Cases in point are the proposed mergers of Tata Coffee and Mount Everest with Tata Tea; Rallis with Tata Chemicals; Tata Teleservices (Maharashtra) with Tata Teleservices; and Tata Sponge Iron with Tata Steel. This will be the second such exercise after Ratan Tata took over chairmanship of the Group in 1991.
There’s another reason, say analysts. Tata Tea’s tea portfolio has come down from 90 per cent in 2004-05 to 70-75 per cent. The idea, say insiders, is for Tata Tea to emerge as a beverage giant that straddles different segments.
The company has expanded its footprint globally, too, by acquiring some key businesses such as Tetley (in the UK) in 2000, Good Earth (in the US) in 2005, Jemca (in the Czech Republic) and Joekels Tea Packers (in South Africa) in 2006. It also acquired trademarks Vitax and Flosana (in Poland) in 2007. Subsidiary Tata Coffee acquired Eight O’ Clock Coffee (in the US) in 2006, even as the parent sold its stake in Energy Brands Inc to Coca-Cola the following year, booking a profit of Rs 2,100 crore.
There are more acquisitions in emerging markets on the cards. Last year, the company snapped up a branding, packing and distribution company in Russia, called Grand. The merger, when it happens, will further the drive.
