The world's biggest bulk tea producer, Mcleod Russel India Ltd of the BM Khaitan group, today bought Hindustan Lever Ltd's entire stake in Doomdooma Tea Company in a Rs 69-crore (Rs 690 million) deal.
For the BM Khaitan group, the acquisition means an addition of 6-million kg of tea a year to its the existing capacity of over 62 million kg. With this move, the group now leads the bulk tea business worldwide.
Doomdooma Tea will become a subsidiary of Mcleod Russel for the time being along with Borelli Tea Holdings Ltd. Doomdooma Tea was a wholly owned subsidiary of HLL. Doomdooma Tea may merge with Mcleod Russel later. Borelli Tea Holdings was the holding company of Williamson Tea Assam Ltd, which was bought out by the group earlier this year.
Borelli Tea will become a subsidiary once the merger of Williamson Tea Assam formally enters the books of Mcleod Russel.
The group is also thinking of raising resources to reduce the debt of Mcleod Russel, which will be around Rs 400 crore (Rs 4 billion) after the acquisition.
Talking to reporters, Mcleod Russel Vice-Chairman Deepak Khaitan said the company would set up a committee to look into options of raising funds once the acquisition was completed.
He did not rule out dilution of stake in Mcleod Russel for raising resources.
"The internal committee will finalise a road map for raising resources, hopefully by April 2006," he said.
Khaitan indicated that he would want to see the debt reduced by 50 per cent from the current level of Rs 400 crore. "We will be happy with a debt of Rs 200 crore (Rs 2 billion) through internal generation. But we are not in a hurry," he added.
According to Khaitan, the paid capital of Rs 50 crore (Rs 500 million) of Mcleod Russel after the merger is high enough to go in for further expansion.
Sources close to the group informed that Borelli Tea Holdings would have 3 crore (Rs 30 million) equity shares of Mcleod Russel after the merger which would raise the stake of the group to 60 per cent in Mcleod Russel.
"After the merger is formally over, Borelli Tea will hold 3 crore shares of MRL. So, at the current price of Rs 63-64, this is Rs 180-185 crore (Rs 1.80-1.85 billion)," said the sources.
Khaitan said several mutual funds and private equity funds were showing keen interest in Mcleod Russel.He said he was expecting to see an EBITA of Rs 75 crore (Rs 750 million) in 2004-05 for Mcleod Russel and a combined EBITA of Rs 90 crore (Rs 900 million) in 2006-07. "We are hoping to reach Rs 100 crore (Rs 1 billion) by 2007-08," he added.