The Hindu Business Line : Tata Tea scrip surges on Coke interest in Glaceau

Strong brew
Trade journal says Coke valuation could be $4 b
Tata Tea bought 30 pc in Glaceau for $677 m
Founder has sold addl 10 pc stake to PE investors
Similar news spiked trade in Tata Tea on April 25

Mumbai May 22 The Tata Tea scrip rose Rs 37.25 or 4.43 per cent on the BSE on Tuesday on renewed claims of Coca-Cola's interest in acquiring Glaceau, in which Tata Tea has acquired 30 per cent stake last year.

The volume of shares traded surged, more than doubling from the previous day, with 1.49 lakh shares changing hands.

Beverage Digest, a trade journal, reported in its issue dated May 21 that Coca-Cola has filed a notification with the Federal Trade Commission of the US about its proposed acquisition of vitamin water maker, Glaceau.

The US law requires that the parties cannot close out the transaction for 30 days after notifying the regulator; the period would enable the authority to decide whether the deal would violate anti-trust laws.

The filing requirement is triggered only if the value of the transaction - in some cases the size of the parties - exceeds certain financial thresholds.

The journal reported that Coca-Cola's valuation of the deal could be around $4 billion.

Nine months ago, Tata Tea had bought 30 per cent stake in Glaceau for $677 million, which worked out to an enterprise value of $2.2 billion for the company.

Shortly after the deal, Mr Ratan Tata was appointed Chairman of Glaceau.

The Tata Tea Vice-Chairman, Mr Krishna Kumar, was appointed Director.

The stake was acquired from TSG Consumer Partners, a private equity firm.

Even if Tata Tea were not interested in selling off its stake, the market sees Coke's interest in Glaceau to be a positive development, as it indicates a higher value for its 30 per cent stake.

And if the company has plans to hike its stake in Glaceau, then Coke's entry in the fray complicates matters, with the possibility of a bidding war.

At the time of announcing the acquisition, Mr Krishna Kumar had said that there were several possibilities going ahead.

"The company may get into an IPO situation," he said.

"And, if there is an opportunity, we will obviously, and hopefully, increase stake."

He added: "It is a negotiated partnership."

Wellness growth

Tata Tea said that it saw wellness beverages as a future growth opportunity in the US.

"Europe, China and India are strong tea consumption countries. In the US it is different," Mr Krishna Kumar had said.

After the deal with Tata Tea, Mr Darius Bikoff, founder-promoter of Glaceau, and his associates, held 60 per cent stake in the company, while private equity investors held 10 per cent.

Subsequently, there were reports that Mr Bikoff had sold an additional 10 per cent stake to private equity investors.

Speculation of Coke's interest in Glaceau surfaced in the market on April 25 itself, which resulted in a spike in traded volumes of Tata Tea shares.

On that day, 2.84 lakh shares of the company were traded - 10 times higher than volumes on the previous trading day.