Tatas consolidate foods business under one company

In a major restructuring of its businesses, Tata Sons on Wednesday announced the transfer of its consumer products business from Tata Chemicals Ltd (TCL) to Tata Global Beverages Ltd (TGBL) in an all-share deal at a swap ratio of 1: 1.14, creating an FMCG behemoth worth over Rs 9,000 crore.

Post-merger of TCL's consumer business with TGBL, the new entity will be named as Tata Consumer Products Ltd.

In separate filings on BSE, both companies said that the Board of directors of TGBL and TCL, at their respective meetings held on Wednesday, approved the de-merger of the consumer products business of TCL into TGBL through a National Company Law Tribunal (NCLT) approved scheme of arrangement.

Pursuant to the scheme, each shareholder of TCL will get 1.14 new equity shares of TGBL for every 1 equity share held in TCL, meaning a shareholder holding 100 shares in TCL will receive 114 shares in TGBL. The respective Boards have approved the entitlement ratio based on the recommendations of independent valuers, the filing said.

During a conference call with media, Harish Bhat, brand custodian, Tata Sons, clarified that TCL shareholders will continue to hold TCL shares, and in addition, will get new TGBL shares in above ratio.

"A TCL shareholder having 100 shares of TCL will retain his/her shares, and in addition, will receive 114 new TGBL shares," Bhat said.

On Wednesday, TGBL shares closed on BSE at Rs 198.75 per scrip, while TCL shares ended at Rs 557.40 a piece. At TGBL's Wednesday closing price, the deal values TCL's consumer business at close to Rs 5,800 crore.

The proposed transaction will create a focused consumer products company with a combined turnover of Rs 9,099 crore and earnings before interest, depreciation, taxes and amortisation (Ebidta) of Rs 1,154 crore.

With the deal, TGBL will now own TCL's branded edible salt, pulses and spice business along with its own branded business of tea, coffee and water.

According to a sector analyst, TGBL's deal with TCL is likely to strengthen the balance sheet of the former, as more consumer products, especially staples, will now be available in its basket of products. With the UK tea business facing challenge, along with rising costs of tea prices in the domestic market, expanding into other categories like salt and pulses will help the company's topline, the analyst said.

Under the scheme, the salt manufacturing facility, basic chemistry products and specialty products business are not proposed to be transferred to the resulting company and will continue to be owned by the demerged company. Necessary salt supply arrangements shall be put into effect on and from the date on which the scheme comes into effect, the BSE filing further said.

The turnover of the demerged division is Rs 1,847 crore in 2018-19, representing 16% of the total turnover of the demerged company on a consolidated basis.

Post-deal, the promoters' shareholding in the entity will be 33.18% from 34.45% at present, while public shareholding will increase to 66.82% from 65.55% as of now.

The deal will see some of the key Tata consumer brands such as Tata Salt, Tata Tea, Tata Sampann and Tetley coming under one single umbrella. On the other hand, Tata Chemicals will focus on innovative science-based chemistry solutions and products, the exchange filing said.

This is the third such consolidation after N Chandrasekaran took over as chairman of Tata Sons in February 2017. Since then, it sold its consumer telecom business to Bharti Airtel and merged defence arms under Tata Aerospace and Defence Ltd.

"Tata Consumer Products consolidates our current presence in food and beverages in the fast-growing consumer sector. Through this combination, we have created a strong growth platform to meet the growing aspirations of lndian consumers," Chandrasekaran said in a statement.

Meanwhile, TGBL continued to face challenges in the UK market where black tea is witnessing de-growth. To address the issue, the Kolkata-headquartered company launched Tetley Cold Infusions in the UK market during the year.

"In the UK, where Tetley is a strong and much-loved brand, the business has been affected by the continued de-growth in the black tea market. Tetley is taking several steps to address this challenge," the group chairman said in the annual report 2018-19. The company also has to create the right strategy for its branded coffee business in the US, which recorded lower levels of performance compared to the previous year.

"The branded coffee market in the US has witnessed consolidation over the past few years and re-crafting the Eight O'Clock coffee business in this new environment is critical to its growth and success," Chandrasekaran said in the report. The year also marked the first full year of transition for Eight O' Clock coffee pods in the US from a royalty agreement with Keurig to TGBL controlling the majority of the sales channel.

TGBL is also buying two packet tea brands of another Kolkata-based tea company Dhunseri Tea and Industries for Rs 101 crore, the company has said in a recent stock exchange filing.