Tata Global Beverages in 20% stake-sale plan

After failing to draw interest from private equity investors, Tata Global Beverages, the world’s second largest tea company is looking to sell a 20% stake in its international operations to a strategic investor.

The group’s vice chairman RK Krishna Kumar told Financial Times on Monday that the company might bring in financial sponsors and sell up to 20% stake in a few months.

“There are quite a large number of strategic partners who have come to us. So it’s a process of carefully analysing what is a good fit and then moving further down the road,” Kumar said.

Analysts said the tea giant is looking to unlock value from its international operations for capital to fund acquisitions in the beverages and foods space globally and bringing in a strategic investor will help it achieve just that.

Traditional tea and coffee businesses are becoming increasingly challenging for the company, formerly Tata Tea, while international markets are saturated leaving little headroom for growth.

Naturally, the company that still receives 70% of revenues from tea and coffee is looking for greener pastures through high growth categories in beverages and foods.

“The business (Tata Global Beverages) per se does not need capital unless they are looking for any big-ticket acquisitions,” Nikhil Vora, managing director, IDFC Securities said.

A Tata Global spokesperson, in an email response to a questionnaire, said: “To achieve the ambitious growth plans of Tata Global Beverages, we are always evaluating options for the best way to invest in innovation, the growth of our brands and acquisitions. No specific proposals have been placed before the board. There is nothing further to communicate at the present time.”

It was in September last year when the tea-maker expressed an interest in selling a minority stake in its UK business Tetley to private equity investors. It was reportedly looking to raise around $200 million by selling a 10-12% stake. The group was earlier believed to be in talks with private equity firms Blackstone, Advent and Bain Capital.

To the surprise of industry observers, wooing private equity players would not have been an arduous deal for the tea giant. As observer pointed out that it was difficult to understand why would a strategic investor settle down for a stake as low as 20% unless it was a precursor to hiking the holding to a majority stake in future.   
 
One possibility is, an analyst said that the strategic investor may not be directly competing with Tata Global in the beverages space, and could be a player of strategic help to the company in forward or backward integration like packaging.

The company’s chief executive Peter Unsworth who has recently quit citing personal reasons and is serving his term till the end of this month has earlier said that the company will look at acquisitions in foods and health drinks space to fuel growth. The company is also believed to be interested in acquiring plantations in emerging markets.

Burdened by high input costs, the company reported a 35% decline in consolidated net profit for the last fiscal.