Tetley and Tata - a defining moment

In February 2000, exactly twenty years ago, BBC ran a lead article that made India proud. “Tetley bagged by India’s Tata”, said the headline. It went on to say – “Tetley Tea, inventor of the tea bag and maker of the traditional English cuppa, is being bought by Tata Tea of India. The deal to buy the world’s second largest producer of teabags is worth 271 million UK pounds, and is the biggest acquisition in Indian corporate history.”

The Tata Group had just created history, once again. But behind this historic moment lies a fascinating story. This tale begins with a veteran of the Tata Group, R.K. Krishna Kumar, popularly known as KK. In the 1990s, he was Managing Director of Tata Tea, and he had been reflecting on the fall of the Berlin Wall. To KK, this signaled a new world structure, and a new vision for the Company he led.

Over the previous decade, KK had broken a few walls himself, in Tata Tea. He had steered its transformation from a small tea plantation Company, to a branded tea major. This strategic effort was led by Darbari Seth, Chairman of the Company, and by KK. In the mid-1980s, the company launched two major “plantation packed” brands of tea – Tata Tea and Kanan Devan – which took the market by storm. Within a decade, Tata Tea had captured a handsome 15 percent of the Indian branded tea market, giving a tough time to the market leader, Unilever.

After this rapid success in India, what next for Tata Tea? KK scanned the huge global tea market, and he dreamt of an Indian Company making an impact on the entire world. He knew that organically building a strong consumer brand, from scratch, in countries outside India would be very challenging. There was the distant possibility of acquiring an international tea brand, which could obviate this risk at one stroke, but could this ever be done? No Indian Company had ever acquired a global brand, until that time.

Recalling those days, KK has said – “Vision often makes its first appearance disguised as a pipe dream. This has happened several times over in the history of the Tata Group. It is the true calling of leadership to seize such dreams, and transform them into splendid reality.”

An opportunity to seize this dream arose when Lyons Tetley, part of the large Allied Lyons group, began buying instant tea from Tata Tea, in 1990. Allied Lyons had a presence in foods, tea, coffee and breweries. They owned Tetley, the world’s second largest brand of tea. The management of Lyons Tetley soon built a lot of respect for Tata Tea’s expertise in tea, and this led to the establishment of a joint venture in Kochi, for manufacture of tea bags. Both Companies happily discovered that they were totally committed to the world of tea. The dating had begun, but there was no marriage on the horizon, yet.

Four years later, in 1994, the first serious proposal was on the cards. Allied Lyons, owners of the Tetley brand, announced their merger with Pedro Domecq to create a liquor multinational, Allied Domecq. They were now keen to focus on liquor, and exit the non-core tea and coffee business. When KK heard this news, his eyes immediately lit up. Here was a rare opportunity to acquire Tetley, one of the world’s leading brands of tea. But then, Tetley was so much larger than Tata Tea. The resources required for such an acquisition would be staggering. Could he make it happen ?

Notwithstanding these issues, KK was supported in his enthusiasm by Ratan Tata, who had become chairman of the Tata Group in 1991, and by senior directors including Darbari Seth and Noshir Soonawala. They saw the compelling logic of going global, and felt the opportunity deserved to be explored.

A Tata Tea team reached London in early 1995 to pursue the acquisition. I was privileged to be a junior member of this team. We studied mountains of documents, over countless prawn sandwiches and cups of tea. There were also long discussions with the Allied Domecq management, and with bankers who could potentially fund the acquisition. Consensus was achieved on a number of fronts. But Tata Tea struggled to put in place the financing required for the acquisition. Not surprising, because this was the first instance of an Indian Company attempting to acquire such a large global brand.

Meanwhile, a management team, backed by venture capitalists and the entrepreneur Leon Allen, was also keenly pursuing the acquisition of Tetley. They pulled ahead of Tata Tea by quickly putting together the funding required. In June 1995, Allied Domecq announced the sale of the Tetley tea business to this venture capital team. Tata Tea had come so close to achieving its global dream, but unfortunately had fallen short. So near, and yet so far.

KK recalls that moment in London. “We felt sad. We could not achieve certainty on our financial plan, so our offer had been rejected. But we realized that we had to get our act together on our funding arrangements, if we ever desired to make such a large global acquisition. It was a lesson well learnt.”

Despite this deep disappointment, KK kept his eyes on Tetley, because he felt that the venture capitalist firms which had bought the brand would sell their stake in the Company, at some point in time. And this day came sooner than expected. In February 1999, KK received a call from the global consulting firm, Arthur Andersen. “The owners of Tetley are willing to sell. Would Tata Tea be interested ?”

KK quickly spoke to Ratan Tata and Noshir Soonawala, at Tata Group headquarters. They reviewed and agreed on the essential logic for acquiring Tetley – a giant leap onto the global canvas, a one-time opportunity to acquire a global tea brand, and a raft of potential synergies in tea sourcing, supply chain and new geographies. In June 1999, in the stately wood-panelled boardroom at Bombay House, the Board of Directors of Tata Tea, chaired by Ratan Tata, gave its go-ahead. A marble bust of the Group’s founder, Jamsetji Tata, stands at one end of this boardroom. On that day, I think he may have secretly smiled.

The Tata Tea team went back to London, to verify that the business was in good health – a process called due diligence. I was a member of that team, and the eyes of the Tetley management were constantly upon us. We had to work with absolute transparency, and we did. I think we built some good rapport with them, too. On Christmas Eve 1999, Ken Pringle, the CEO of Tetley, unexpectedly dropped by to meet us, and gifted us quaint ceramic figures of the “Tetley Tea Folk” – warm, animated characters – which I have preserved until today.

In the meanwhile, KK had learnt his lessons from the failed bid of 1995, and was investing his time and effort in tying up the funding required. Eventually, in a long and decisive meeting with Rabobank, he convinced the vice-chairman of the bank at that time, Wouter J. Kolff, to provide the financial backing required. KK recalls that Kolff finally stood up, looked him in the eye for a few seconds, and said – “Done!”.   

Noshir Soonawala, Finance Director at Tata Sons, helped develop the financial structuring of the transaction. Known to possess a razor-sharp intellect, he put together the required framework for a leveraged buyout, which enabled Tata Tea, a relatively small Company, to undertake this massive acquisition. Such a buyout was unheard of in India, at that time. In January 2000, after extensive analysis and discussions, a final bid for Tetley, fully backed by financing, was submitted. The bid figure - GBP 271 million. (approx. US$ 432 million).

This bid was evaluated by the owners, and, in February 2000, it was finally accepted. Tetley had entered the Tata fold! Tata Group Chairman Ratan Tata called it a momentous occasion for the Company. Indeed, it was a defining and historic moment. Tata Tea had created history by acquiring a global brand and business several times its size. It had created history for itself, for the Tata Group and for India.

The Tetley acquisition was a path breaking venture in so many ways, and it signaled a new self-belief in India. But here is something I would like to call out. This acquisition took ten long years to fructify, from dream to finish - with many small steps which built trust and confidence, and a deep disappointment becoming an immediate opportunity to learn. Each of us can hope to achieve our own audacious dreams, if we persist, and learn, and persist.