Coke cloud on Tata Glacéau glee

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  • Published 25.04.07

Mumbai, April 25: Eight months after he acquired a 30 per cent stake in Glacéau — the US-based vitamin water maker — Ratan Tata could be facing the biggest challenge to his investment.

Coca-Cola Inc, the beverage giant, is understood to be keen on acquiring Glacéau to boost its portfolio. Reports in The Wall Street Journal and two industry publications, Beverage Digest and Beverage Business Insights, quoted unnamed sources as saying the soft drink maker was in serious negotiations to acquire a substantial stake or all of Glacéau.

The reports said Coke could make an announcement about the deal when its North American bottlers meet in Atlanta in early May.

Coca-Cola is believed to be keen on acquiring Glaceau as it would enhance its product portfolio at a time when health-conscious consumers have started migrating to energy drinks.

In August last year, the Tata group announced the acquisition of a 30 per cent stake in Glacéau for $677 million (Rs 3,150 crore) that valued the company at over $2.2 billion. Tata Sons — the holding company of the group — and Tata Tea jointly acquired this stake from TSG, a private equity firm. Although the interest shown by Coca-Cola could not be confirmed at this point of time, it has raised questions about the next strategy which the Tatas will adopt.

Dan Schaffer, a spokesperson for Coca-Cola, told The Telegraph over the phone from Atlanta that the company did not wish to comment on rumours or speculation.

Officials from Tata Tea too said they would not comment on speculation. Unconfirmed reports said R.K. Krishna Kumar, vice-chairman of Tata Tea and the architect of the Glacéau deal, is currently on a visit to the US.

However, sources said this should not be connected to the latest developments over Glacéau.

“Tata Tea is a global company and the senior management is often outside the country,” they added.

News of Coke’s interest in Glacéau saw the Tata Tea share surging 14.61 per cent on the Bombay Stock Exchange today. The counter was the biggest gainer as it ended at Rs 773.35, a Rs 99.65 gain over the previous close of Rs 673.70.

Market observers said this rise was attributed to speculation that with Coke closing in on Glacéau, Tata Tea may choose to sell its stake in the US company. In such an event, Tata Tea could reap major capital gains. This is because the valuation of Glacéau is reported to have gone up from $2.25 billion, at the time of the Tata deal, to over $3 billion at present.

On Wall Street, the Coca-Cola stock was trading at $51.65, down by 6 cents at the time of going to press. The stock is just off its 52-week high of $52.20.

“The key question is whether the Tatas will co-exist with Coca-Cola if the latter is indeed successful in acquiring Glacéau. It is felt that Tata Tea will prefer to exit rather than working with a new partner,” said an analyst with a domestic brokerage who did not wish to be identified.

However, there are others who feel that the Tatas are unlikely to back out from this crucial investment.

One of the main reasons that saw the group investing was that Glacéau provided an excellent platform for the global growth of its beverage business. Glacéau has an extensive distribution network in the US. It is felt that the Tata group, which recently made headlines with the $12.9-billion acquisition of Corus Group Plc after slugging it out with Brazil’s CSN, could take the battle to Coke and that it could even strike a deal with J. Darius Bikoff, founder and CEO of Glacéau.

While 50 per cent of Glacéau is being held by its promoters, friends and associates, the balance 20 per cent is held through a number of venture capital funds.

For the Tatas, at the time of this transaction, they were also given the option to buy another 10 per cent stake in the company.

Formed in 1996, Glacéau makes energy drinks called the ‘enhanced water category’. The products include vitamin water, which is nutrient-enhanced, fruit water, which is flavour-enhanced and smartwater.

Since its inception, Glacéau has experienced a compounded annual growth rate of more than 200 per cent and sells more than five million bottles every day.