Armed with a 30 per cent equity stake, a first right of refusal and two positions in the board of directors, Tata Tea is stepping on the gas to increase its holding in America’s fastest growing health beverage company Glaceau to 51 per cent.
A US trade journal has reported that cola majors Coke is eyeing US-vitamin water maker Glaceau. It said that rival cola maker Pepsi too might be in the fray. It is not clear whether Coke is talking to Tatas or is trying to buy out the remaining 70 per cent shareholders. It has been reported that the Coke might be looking at a valuation of $3 billion for taking over 100 per cent equity in the company.
“Tata Tea’s acquisition of 30 per cent stake in Glaceau was strategic in nature and was not merely a portfolio investment. The group has also the first right of refusal with the existing management. Besides, we have two board members out of five,” said sources in the Tata Group on the condition of anonymity.
However, a Tata Tea spokesperson refused to comment. “The news is speculative. Tata Tea does not wish to comment,” he said.
The Tata Tea scrip did a jig on Wednesday. The scrip moved up by 14 per cent on the National Stock Exchange closing at Rs 772.85, moving up from Rs 674.35 of yesterday. The Coca-Cola stock too had hit a two-year high at $52.20 on Monday.
In August 2006, Tata Tea acquired 30 per cent in Glaceau for $677 million from private equity fund TSG Consumer Partners. Tata Tea and Tata Sons had together invested $250 million to buy out TSG Consumer Partners’ stake. The balance was financed through debt.
Investment banking sources said the Glaceau management discussions with Coca-Coal and PepsiCo were designed to extract a higher price from Tata Tea. At the time of acquisition, Tata Tea had announced its intention to increase its stake in Glaceau.
“It is expected at that the Tatas will now have to pay a substantial premium over the price it paid for the initial stake. When Tata Tea acquired the stake last August Glaceau was valued at $2.25 billion,” they said.
Glaceau is the second biggest player in the US health drink market with a 16.8 per cent share. It notched up a blistering 148 per cent sales growth in the first half of 2006, against 16.8 per cent of PepsiCo's Propel fitness water, which dominates 35.7 per cent of the market.
Tata Tea’s other big overseas purchase was that of the Tetley brand in the UK for $432 million in 2000. The company is rapidly diversifying its portfolio. Last year it bought Czech brewer Jemca and Good Earth USA last year for $27 million and Eight O' Clock Coffee for $109 million.