Tata Chemicals To Sell Consumer Business To Tata Global

The Tata Group will bring its consumer businesses under one unit as the salt-to-software conglomerate continues restructuring to streamline its operations. Tata Chemicals Ltd. will demerge its food business to Tata Global Beverages Ltd., one of the biggest makers of branded tea and the owner of Tetley, the company said in an exchange filing.

Structured as a scheme of arrangement, the deal will entail the issuance of shares by Tata Global to Tata Chemical shareholders in lieu of the consumer business. Shareholders will get 114 shares of Tata Global for every 100 held in Tata Chemicals. The deal values Tata Chemicals’ consumer business at nearly Rs 5,800 crore, according to BloombergQuint’s calculation. This as per Tata Global’s share price of Rs 199, as of close on May 15.

This is the third such consolidation after Natarajan Chandrasekaran took over as chairman of Tata Sons Ltd. in February 2017. The group has since sold its consumer telecom business to Bharti Airtel Ltd. and merged defence arms under Tata Aerospace and Defence Ltd. The conglomerate has more than 100 companies but the bulk of the contribution to revenue and profits comes from Tata Consultancy Services Ltd.

“Tata Consumer Products consolidates our current presence in food and beverages in the fast-growing consumer sector,” Chandrasekaran said in the statement. “Through this combination, we have created a strong growth platform to meet the growing aspirations of lndian consumers.”

Consumer Business With Rs 9,000-Crore Revenue

Tata Chemicals’ consumer business that will be transferred to Tata Global includes sourcing, packaging, marketing, distribution and sales of its Tata Salt, pulses and spices under the Sampann brand, and its snacks business. These did a turnover of Rs 1,847 crore in financial year 2018-19.

The proposed transaction will create a “focused consumer products company” in Tata Global which will be renamed Tata Consumer Products, the statement said. As of the year ended March 2018 this combined business would have had a revenue and operating income of Rs 9,099 crore and Rs 1,154 crore, respectively, the company said.

Tata Global will issue 28.9 crore shares to Tata Chemical’s shareholders taking total number of fully paid up equity shares to 92,05,65,191, according to the exchange filing.

A majority of Tata Global’s revenue comes from the U.K. and U.S. from its coffee and Tetley Tea businesses and a deal like this would further strengthen the company’s balance sheet, according to ICICI Direct’s Research Analyst Sanjay Manyal. “Concerns remain that both the categories—tea and salt—are saturated and aren't growing very fast.” The combination of the tea and salt businesses will enable more media spends and investment in creating new categories, Manyal said.

Watch a discussion with analysts on the proposed deal.

Tata Chemicals Now

Tata Chemical’s salt manufacturing facility, basic chemistry products and specialty products business are not proposed will stay with the company. Necessary salt supply arrangements shall be put into effect on and from the date on which the Scheme comes into effect, the company statement said.

Tata Chemical shareholders will retain their ownership of a “focused science-led chemistry solutions and specialty products company,” it added.

The boards of the two companies approved this restructuring at meetings held on May 15 and the scheme will need approval from shareholders and creditors of each company, and the stock exchanges, market regulator Securities and Exchange Board of India and the National Company Law Tribunal.

The transaction is expected to be completed by the fourth quarter of the current financial year of Q1 of FY21, the statement said.

Harish Bhat, brand custodian at Tata Sons, Ajoy Misra, MD of Tata Global Beverages and R Mukundan, MD of Tata Chemicals address a media conference call. Watch here...