Just saw the side of my box of Tetley Tea – now sporting the new label “Tata Global Beverages”. What’s that all about? Someone messing with my tea? Something’s stirring in the markets, and somehow I think it’s more than just my cuppa…
If you aren’t familiar with Indian company Tata it’s principal business for ages was steelmaking, and it’s one of the biggest in the world at that, certainly the biggest in India. Amongst many other things, they also make the world’s cheapest car, the Tata Nano which flopped a little when launched and which has had to go through a rushed and consequently rather expensive redesign. It also owns Jaguar-LandRover which might explain why Range Rovers have so much more bling these days.
Tetley Tea really changed when the $114 million Tata bought the much larger Tetley for $450 million, funded of course by debt to be supported by the expected cashflow generated from regular sales to tea addicts. At the time it was the biggest takeover by an Indian company of a non-indian company. It’s tea business is now No 2 in the world, second behind Unilever.
After that lots of other acquisitions followed, very possibly following the same debt fuelled model. So why change the name on the box now? Back in the day when Hanson plc was a fast growing UK conglomerate run by the Lords White and Hanson they initially kept all of the company’s acquisitions separate from each other under their own brand names. Then, when they wanted more support from the City, they began renaming all the brands with the name Hanson on the box. A sort of advertising for the holding company in the manner of “We’re bigger than you think – look how much we own!” Why did they do that? They needed money.
With Tata having made a shock loss last year, the lack of positive cashflow must be hurting the company. Remember all those acquisitions that were paid for through debt? Usually these things work on very fine margins with little headroom between the debt servicing costs and the income each business makes. When credit is tight, as now, these tiny margins can shrink so far they can bring a company down . And that could be why Tata Global Beverages has been added to my box of Tetley Tea. They want to raise money, and fund it through an acquisition. Only this time, it will be a share issue rather than a bond issue, and it’s labelled not as a rescue package, but to “fund overseas expansion” perhaps into foods.
If Tata wants a higher profile so the company can replace borrowing on better terms, or pay it off altogether through share issues, will my tea change? After all, the new name on the box often turns into the only name on the box, so Tetley Tea might disappear as a brand. I hope not, but my fear is it’ll soon be Ta Ta to Tetley Tea.