Tata Chemicals (TCL) and Tata Global Beverages (TGB) boards have approved a proposal to demerge the consumer business from TCL and transfer it to TGB through in a stock transaction. TCL shareholders will be issued 1.14 new shares of TGB for every share held in the former, resulting in 291 million shares increase in TGB’s share count. TGBL will become the pure consumer/FMCG business play under the Tata Group under a new name, Tata Consumer Products Limited, on completion of this transaction. The transaction will be effective from 1st April 2019, while the management expects to complete it by Q4Fy20/Q1Fy21. The transaction is subject to approval of most minority shareholders of both entities.
The proposed transaction at TGB share price of Rs 199 (Closing price as on15th May 2019) implies that it has been valued at Rs.58.08 billion of valuation to TCL consumer segment for Fy19 EBITDA of Rs. 3.16 billion and net profit of Rs. 2.04 bn. The combined entity would be having Rs. 90.99 billion top-line and Rs. 11.54 billion EBITDA in FY19, on a proforma basis.
TCL will transfer consumer business working capital to TGB, while retaining its salt manufacturing assets. TGB management expects to derive 2-3% synergy benefits on combined India consumer business revenues of Rs. 50 billion over the next 18-24 months.
Combined Entity Benefits:
- Post the transaction, TGB distribution reach would be more extensive, by 15%-25% to 2.5 million outlets.
- A wider portfolio would enable cross selling and also secure superior terms of trade with channel partners.
- A larger portfolio would also help leverage scale, to explore efficiency gains in areas such as marketing, packaging, supply chain and logistics.
The proposed transaction will create a focused Consumer products company. The combination of the two consumer-focused businesses will benefit both sets of shareholders who will be able to participate in a larger business share of the foods & beverages market with a broader exposure to FMCG sector. TCL shareholders will retain their ownership of a focused chemistry solutions and specialty products company with a leading portfolio of products in basic and specialty chemicals. The combined consumer business will also benefit from a combined reach of over 200 million households, a broader portfolio to deepen distribution, enhanced innovation capabilities, as well as a strong product pipeline. ln addition, the new consumer entity expects to achieve substantial revenue and cost synergies which will add value to its shareholders.