With an intent to put in place a consolidated platform for its consumer business and become a leader in the FMCG segment, Tata Group on Wednesday announced the transfer of the branded food business from Tata Chemicals to Tata Global Beverages. The all-shares deal would create an over Rs 9,000-crore giant. Under the agreement, Tata Global Beverages (TBGL) will buy the business of selling edible salt, spices, and lentils, and give shares in return to Tata Chemicals (TCL).
TGBL will rename itself as Tata Consumer Products after the deal.
"The trigger (for merger) is that Indian market is poised for rapid growth and now we have businesses in both the enterprises (TGBL and TCL) which are of scale and size which makes them to bring together. Also, we didn't want to do this till we establish our clear leadership position in both the companies in key categories," TGBL managing director Ajoy Misra told reporters during a conference call after the announcement.
"Today, since both the companies have achieved it, we thought this is the right time to come together. Also the vision we have of scale and synergy and that's the outcome of the efforts taken," Mr Misra said.
The boards of directors of Tata Global Beverages and Tata Chemicals approved the de-merger of the consumer products business of TCL into TGBL. Also, each shareholder of TCL will get 1.14 new equity shares of TGBL for every one equity share held.
The proposed transaction will create a focused consumer products company with a combined turnover of Rs 9,099 crore and an EBIDTA of Rs 1,154 crore, Mr Misra said.
"One of the key objectives of the announcement made is to put in place a consolidated platform to the consumer business of the Tata Group, which is essentially FMCG business," Tata Sons brand custodian Harish Bhat said.
A statement issued by the group said that the combination of the two consumer-focused businesses will benefit both sets of shareholders who will be able to participate in a larger business poised to grow their share of the foods and beverages market with a broader exposure to the attractive and fast growing FMCG sector.
TGBL sells tea under Tetley and Tata Tea brands as also coffee under Eight O'Clock brand and bottled water.
TCL, the world's third-largest producer of soda ash, will focus on its core chemicals business after this deal.
As per the arrangement, TCL shareholders will retain their ownership of a focused science-led chemistry solutions and specialty products company with a leading portfolio of products in basic and specialty chemicals and strong cash flows to support future growth.
Speaking about the deal, TCL managing director and CEO R Mukundan said the rationale is to create two platforms with one being becoming a science and chemistry based solution company and the other is being a leader in the consumer product FMCG space.
He further said this combination provides significant benefits to its shareholders by unlocking the value of its consumer products business.
Asked whether the company was planning to consolidate its coffee business as well, Mr Misra said, "Tata Coffee, which is a subsidiary of TBGL is more of a B2B business. It will continue to chart its own journey of growth. We have also made an investment in the greenfield instant coffee facility in Vietnam. So it will continue to be a part of TBGL."
He also said that in addition to being an Indian consumer brand company, the international brands are very much a part of the TGBL's Indian growth voyage and it would continue to nurture and invest in those international brands through Tetley and Tata Tea brands, among others.
"As we continue to restructure and grow our international business mainly focused on Indian diaspora, that efforts will continue. TGBL has a great presence in Canada and the UK, among others, the new products will also get access to both markets. This will strengthen our products in India and we will also be exporting," he added.
Commenting on the announcement, Tata Sons chairman N Chandrasekaran said, "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 Indian consumers."
Asked about the prospects of the cement business of Tata Chemicals, Mr Mukundan said, "it (cement business) is a small part of TCL and we have several times looked at it (for divesting). But we have now concluded to run it as a part of our business but the focus market will continue to be in Saurashtra in Gujarat."