Tata Coffee to complete merger with TCPL in next 14 months

Tata Consumer Products Ltd, the FMCG arm of the Tata group, has already merged the salt division of Tata Chemicals into itself. Now, TCPL has announced the merger of all the businesses of Tata Coffee Ltd into itself.

This will help to create a vertical food conglomerate covering packaged foods, beverages and other food items as well as ingredients. This is likely to help the group better unlock synergies and efficiencies towards better ROI.

The idea has been part of the larger aim of the Tata group to realign all their group units and business divisions into similar baskets. It has already done such an exercise for defence, IT solutions and renewable power solutions.

FMCG is one area where the Tata group plans to aggressively realign business and create better synergies so that it can take on the challenge of larger and well established FMCG players in the Indian market.

The process of the merger will be preceded by some demergers and adjustments to smoothen the entire process flows. For instance, the plantation business of Tata Coffee Ltd will be demerged and integrated into TCPL’s wholly-owned subsidiary, TCPL Beverages & Foods Ltd.

The remaining businesses of Tata Coffee, comprising of extraction and the branded coffee business, will be directly merged into Tata Consumer Products (TCPL).

The demerger will be the first step. The scheme of arrangement will be as under. Shareholders of Tata Coffee Ltd (barring TCPL) will be allotted a total of 3 equity shares of TCPL for every 10 equity shares of Tata Coffee.
 

In consideration of the demerger of the plantations business, shareholders of Tata Coffee will get 1 share of TCPL for every 22 shares held. Then, for the overall merger, shareholders of Tata Coffee will get 14 shares of TCPL for every 55 shares held. Let us look at how this adds up to the eventual 3:10 ratio.

Here is how it will work. If an investor is holding 110 shares of Tata Coffee, then first he gets 5 shares of TCL (as consideration for the demerger of the plantations business). Now this 110 shares of Tata Coffee will get shares in the ratio of 14:55; that means he gets 28 shares.

Since he has already got 5 shares for the demerger, he gets a total of 33 shares of TCPL for the overall merger of Tata Coffee into TCPL against his 110 shares held. Hence his overall effective swap ratio works out to 3:10.

Currently, TCPL already holds 57.48% stake in Tata Coffee Ltd. In addition, TCPL will also buy the minority interest in its UK subsidiary, Tata Consumer Products UK by way of a share swap, through a preferential issue of shares.

The transactions will result in TCPL having 100% ownership of the business of TCL and of TCP UK. This will catalyse the efficient reorganization of the global business also, along with the domestic business.

For Tata Consumer Products, the biggest benefit will be that it will enable the company to better leverage the supply chain, create customer-focused business verticals, lead to efficient sharing of common pool resources and accelerate decision making.

For Tata Coffee, this deal enables them to better leverage the strong coffee expertise and build on it with the bigger balance sheet of the umbrella TCPL brand.

Tata Consumer Products, already owns a robust portfolio of food and beverage brands that include Tata Salt, Tata Tea, Tetley, Eight O’ clock, Himalayan Water, Tata Water Plus and Tata Gluco Plus, Tata Sampann, Tata Soulfull and Tata Q.

The entire merger is expected to be consummated with all regulatory approvals as well as the necessary integration levers in a period of around 12 to 14 months at the maximum.