Tata Tea gains as Coke gallops Glaceau

The Tatas have done it again in the global business world, the only difference being, this time not as a strategic investor but as a financial investor. Tata Tea, world’s second-largest branded tea firm, in less than a year’s time has reaped in a handsome return on its investment in the US based Energy Brands Inc, maker of Glaceau vitamin water.

Tata Tea had acquired a 30 per cent stake in Glaceau, having $355 million turnover, in August 2006 for a consideration of $677 million thus valuing it at $2.3 billion. This transaction was Tata Tea’s second biggest global footprint after its acquisition of UK based Tetley. At that time of the transaction, Tata Group had projected Glaceau’s annual revenue to nearly double to 700 million dollars in 2007. Tata Tea saw value in Glacaeu owing to its range of Smartwater, Vitaminwater and Fruitwater which proved an instant success.

Tata Tea’s forecasts became quite true as is evident from the price which Coca-Cola Co. paid to buy Glaceau in an all cash deal. Coke paid $4.1 billion, which is over 80% premium to price paid by Tatas. The windfall gain for Tata Tea was reflected in its market price, which touched an all time high on the stock markets. Tata Tea wants to use the proceeds to repay the Tetley debt. At the time of the deal last year, there were apprehensions of Coke and Pepsi clicking the deal, but Tata Tea was quick to react and seal the deal early, Glaceau was also inclined in this format as it would help it retain its identity and management, rather than it working under global giants.

But now the inevitable has happened. It makes sound business sense for Coke to buyout Glaceau, as the global sale of carbonated drinks is on decline owing to health concerns, and non-beverated and health drinks were becoming more popular, the company was looking to expand its water and energy drink portfolio and this will increase its ability to meet the market requirements of sparkling and still beverages.

For Coke shareholders, the takeover may deliver attractive returns as Glaceau has a business with high-quality growth, and strong pipeline of innovative products and brands, thus filling the void in company’s drinks portfolio.