Tata Tea Ltd. And Tetley, Plc (a)

Abstract

In 2001, after Tata Tea took over the giant Tetley in a leveraged buy-out, it was presented with problems: there was the array of vertical integration synergies, but the leveraged buyout structure, cultural differences, and lack of planning meant that the realization of synergies was delayed. The difficulties were exacerbated by the cyclical downturn in the tea industry and the increased competition from substitute products. The purpose of this case is to illustrate: (1) issues associated with cross-border merger integration; (2) when vertical integration makes sense and when it does not; (3) the application of PMI frameworks and concepts; (4) the issues associated with a leveraged buyout structure; and (5) the trap of the winner's curse.

Excerpt

UVA-BP-0478

TATA TEA LTD. AND TETLEY, PLC (A)

Homi Khusrokhan, CEO of Tata Tea Ltd., was on his way to a meeting with senior officials from both Tata Tea and Tetley. It was February 2001, a year since Tata Tea acquired Tetley in a leveraged buyout. As Khusrokhan sat back in the plane contemplating the events that led to the impending meeting, he was deeply concerned about the progress of postmerger integration. The integration achieved was much less than was expected, and the prospects of repaying the large debt load were proving daunting. The only synergies achieved were in tea sourcing and some gains in Eastern European and Middle Eastern markets. Khusrokhan was mindful of the ramifications of the delay in the integration process and reviewed the potential actions he might take.

The Tea Industry

After water, tea was reportedly the world's most widely consumed beverage. According to legend, the practice of drinking tea began in 2737 BC with the Chinese emperor, Shen Nung. One day, while visiting a distant region, Shen Nung stopped to rest. As the servants boiled water, leaves from a nearby bush fell into the water, and the first cup of tea was infused. Shen Nung drank the liquid and found it deliciously refreshing, and the culture of drinking tea was born and soon spread into every aspect of Chinese society.

Although tea was indigenous to other regions of the world, including Assam in India, for centuries the Chinese enjoyed a monopoly on the production of tea, and through an agreement with the Chinese, the British had a monopoly on the trade of tea. Over the years, tea became so important that it became a currency in international trade.

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Keywords: Postmerger integration merger, global strategy, crossborder international acquisition, mergers acquisitions