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Tata Tea to spin off gardens

Mumbai, Feb. 11: Tata Tea today proposed selling 17 tea estates in the south under a plan where all assets and liabilities will be spun off into a private firm formed by employees.

The board met here today on the issue and decided to seek the approval of shareholders ' through postal ballot ' and regulators to transfer 17 estates to the new company.

Tata Tea will call bids for eight estates (seven tea and one coffee plantation), which form part of the free-hold gardens, with the objective of selling them outright. Similar plans are afoot for estates in the Northeast.

Managing director P. T. Siganporia, the man behind the proposal, admitted pushing the move would not be easy. 'If we make it a success, others will follow suit. The colonial system of managing plantations is not sustainable. We will live to the expectations of everyone,' he said, adding the support of employees will be crucial.

The 17 estates to be transferred to a private firm have 12,500 employees. For Tata Tea, which is expected to hold a little less than 20 per cent in the new entity, the proposal means it will be insulated from the vagaries of business and concentrate on brand building alone.

Siganporia said as much when he conceded that even in a bullish year like this, operations have not shaped up well.

The company said the valuation exercise is being undertaken by Ernst & Young and the deal is being structured by ICICI Securities, which will also bring in the cash.

Tata Tea will protect employees by ensuring that eight estates earmarked for outright sale go to plantation companies. 'We are guided by the goodwill of the people who have been with us,' Siganporia added.

The move would mean that after the de-merger of the 17 plantations, the 12,500 employees will manage their own destinies. The Tata Tea balance sheet will not reflect their wages and other overheads paid out to them.

Siganporia said southern plantations were picked first because they are the most difficult of all the estates. Tata Tea is expected to save Rs 8-10 per kg in costs and get the time to concentrate on brand building.

'We are sending strong signals. We have 54,000 employees who look to us and it is a win-win situation for every tea worker and his family. I think I got a solution that will bring a smile on their faces,' he added.

Tata Tea, which expects benefits of the move to flow in three to four years, will tell shareholders that is pulling out of plantations to develop and expand the branded business of the company, both in India and overseas.

Globally, companies with premier tea brands rarely have their own plantations. Most go to auctions, where they buy tea and sell them after processing and packaging. However, Tata Tea, while selling estates, will not part with the factories often located inside the gardens.

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