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The Leveraged Buyout Deal of Tata & Tetley Free essay! Download now

Home > A Level > Business studies > The Leveraged Buyout Deal of Tata & Tetley

The Leveraged Buyout Deal of Tata & Tetley

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how lbo transaction performed by tata to acquire tetly


The Leveraged Buyout Deal of Tata & Tetley
The case ‘The Leveraged Buyout Deal of Tata & Tetley’ provides insights into the concept of Leveraged Buyout (LBO) and its use as a financial tool in acquisitions, with specific reference to Tata Tea’s takeover of global tea major Tetley. This deal which was the biggest ever cross-border acquisition, was also the first-ever successful leveraged buy-out by any Indian company. The case examines the Tata Tea-Tetley deal in detail, explaining the process and the structure of the deal. The case helps them to understand the mechanism of LBO. Through the Tata-Tetley deal the case attempts to give students an understanding of the practical application of the concept.
In the summer of 2000, the Indian corporate fraternity was witness to a path breaking achievement, never heard of or seen before in the history of corporate India.
In a landmark deal, heralding a new chapter in the Indian corporate history, Tata Tea acquired the UK heavyweight brand Tetley for a staggering 271 million pounds. This deal which happened to be the largest cross-border acquisition by any Indian company, marked the culmination of Tata Tea’s strategy of pushing for aggressive growth and worldwide expansion.
The acquisition of Tetley pitch forked Tata Tea into a position where it could rub shoulders with global behemoths like Unilever and Lawrie. The acquisition of Tetley made Tata Tea the second biggest tea company in the world. (The first being Unilever, owner of Brooke Bond and Lipton).
Moreover it also went through a metamorphosis from a plantation company to an international consumer products company.
Ratan Tata, Chairman, Tata group said, “It is a great signal for global industry by Indian Industry. It is a momentous occasion as an Indian company has been able to acquire a brand and an overseas company.” Apart from the size of the deal, what made it particularly special was the fact that it was the first ever leveraged buy-out (LBO)2 by any Indian company. This method of financing had never been successfully attempted before by any Indian company. Tetley’s price tag of 271 million pounds (US $450 m) was more than four times the net worth of Tata tea which stood at US $ 114 m. This David & Goliath aspect was what made the entire transaction so unusual. What made it possible was the financing mechanism of LBO. This mechanism allowed the acquirer (Tata Tea) to minimize its cash outlay in making the purchase.
Tata Tea was incorporated in 1962 as Tata Finlay Limited, and commenced business in 1963. The company, in collaboration with Tata Finlay & Company, Glasgow, UK, initially set up an instant tea factory at Munnar (Kerala) and a blending/packaging unit in Bangalore.
Over the years, the company expanded ...

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