Tata Consumer Products (TCPL) recently announced a reorganization plan in line with its strategic priority of unlocking synergies and efficiencies. This plan includes the demerger of plantation business of Tata Coffee Limited (TCL) into TCPL Beverages & Foods (TBFL), a wholly owned subsidiary of TCPL and the merger of the remaining business of TCL, consisting of its extraction and branded coffee business with TCPL, with the demerger to happen as the first step and merger to happen as the immediate second step, both being proposed through a composite scheme of arrangement. Additionally, TCPL proposes to purchase the minority interest in its UK subsidiary, Tata Consumer Products UK (TCP UK) by way of a share swap, through a preferential issue of its equity shares.
These actions further TCPL’s objective of creating a future ready organization and will act as a stepping-stone for further simplification. These will also result in operational efficiencies, faster decision making and execution, creation of focused business verticals and unlocking of potential synergies. The consolidated actions outlined here are expected to generate material revenue, cost and other synergies over medium to long term, following the completion of the proposed transactions and future simplification initiatives, which will be undertaken following the receipt of requisite approvals and processes.
Composite Scheme of Arrangement
The Boards of Directors of Tata Consumer Products and Tata Coffee, at their respective meetings held on March 29, 2022, have approved the combination of plantation business of TCL with TBFL and non-plantation business with TCPL through a composite scheme of arrangement for demerger and merger (Scheme). This will enable the consolidation and 100% ownership of the branded, extractions & plantations business of TCL into TCPL and its wholly owned subsidiary.
On effectiveness of the Scheme, the shareholders of TCL (other than TCPL) as on the record date will receive an aggregate of 3 equity shares of TCPL for every 10 equity shares held by them in TCL, through the issuance of:
1 equity share of TCPL for every 22 equity shares of TCL, in consideration for the demerger (as per the approved share entitlement ratio); and
14 equity shares of TCPL for every 55 equity shares of TCL, in consideration for the merger (as per the approved share exchange ratio).
Through this transaction, TCL shareholders will get access to multiple growth engines and participation in a larger and fast growing FMCG business. TCPL shareholders are expected to benefit from better synergies and business efficiencies going forward.
The Scheme is subject to the necessary statutory and regulatory approvals including approvals of the respective benches of NCLT, the stock exchanges, SEBI and the respective shareholders of each of the companies.
Consolidation of Interest in TCP UK
The Board of Directors of TCPL at their meeting have also approved the purchase of 10.15% minority interest in its UK subsidiary, TCP UK, from Tata Enterprise (Overseas) AG, Switzerland (TEO). As consideration, TCPL will issue 74,59,935 equity shares i.e. 0.80% stake (computed on post preferential issue basis) to TEO, by way of preferential issue in accordance with the applicable regulations.
This transaction is subject to TCPL shareholders’ approval and other regulatory approvals, as may be required under applicable law.
The above transactions will result in TCPL having 100% ownership of the business of TCL and of TCP UK, which will be an enabler for efficient reorganization initiatives of its international business. The above transactions, along with future reorganization, will help unlock value for both TCPL and TCL shareholders who are expected to benefit from the resulting efficiencies and operational, administrative and financial synergies.
Commenting on the announcements, Sunil D’Souza, managing director and chief executive officer, Tata Consumer Products said, “The restructuring initiative is in line with Tata Consumer Products’ strategic priorities - to unlock synergies and create a future ready organization. This exercise will enable us to better leverage our supply chain, create customer focused business verticals, and accelerate decision making & execution. This will be a stepping-stone for further simplification initiatives with a view to achieving recurring operational, administrative and financial synergies. We are confident that this will create significant value for all our stakeholders.”
Chacko Thomas, managing director and chief executive officer, Tata Coffee said, “This reorganization exercise will enable Tata Coffee to better leverage the strong coffee expertise we have and allow us to integrate more closely with TCPL’s branded coffee business, to propel it further. Combining our extractions business with TCPL’s tea extractions business will help us to strengthen our product offerings and unlock market potential by widening the portfolio and geographic reach. Overall, we believe this transaction will give TCL shareholders an opportunity to benefit from a much larger and faster-growing integrated F&B business under the aegis of TCPL.”