Tata acquires leading American coffee business from private equity firm

Tata Coffee announced on Sunday that it had signed an agreement to acquire Eight OÆClock Coffee Company (EOC) from San Fransisco based private equity firm, Gryphon Investors for $220 million. EOC opened its first store in 1859 and launched the ôEight OÆClock Coffeeö brand in 1919. Its presence today encompasses branded whole beans, retail coffee and the gourmet segment in the US and Canada. It sells under the Eight OÆClock and Royale brands; in the retail coffee category Eight OÆClock is the 3rd largest national brand in terms of volume in America behind Folgers and Maxwell House. For calendar 2005 EOC registered net sales of $109 million on which it earned an EBITDA of $27 million.

The acquisition provides Tata Coffee with an established brand in the sizeable $21 billion coffee market in the US. Tata Coffee has a stated intent to transform itself from a largely regional company to a global player. EOC is also in line with the companyÆs strategy to move up the value chain and become a fully integrated coffee company.

Tata Coffee registered a turnover of Rs1.9 billion ($42 million) for the fiscal year ended March, 2006 on which it earned a net profit of Rs223 million ($5 million). Tata Coffee announced it would finance the acquisition, which is of significant value given its own size, through a combination of equity and non-recourse debt. Five years ago, Tata Tea - which holds a 51% stake in Tata Coffee - closed the largest non-recourse, cross-border financing an Indian company until then had secured, for itsÆ acquisition of the UK's Tetley Tea. Since then Tata Tea has also acquired the Good Earth brand in the US in late 2005 and then Jemca, which controls 26% share in the Czech Republic, in February this year.

Gryphon is reaping the rewards of an acquisition it consummated just over two years ago in January 2004. The Great Atlantic & Pacific Tea Company (owners of A.& P. and Food Emporium supermarket chains) announced the sale of EOC to Gryphon in October 2003 at a value of at least $107.5 million. This was part of a restructuring and asset sale plan to reduce its debt burden and costs. Gryphon agreed to theoretically pay up to $20 million more than this price, based on the future performance of EOC.

In a special live trading session of the Bombay Stock Exchange (BSE) and National Stock Exchange on Sunday Tata Coffee was the top gainer in the B1 segment in which it trades. It gained 20% from its opening price of Rs295 to close at Rs326 during the course of the one hour trading. Parent Tata Tea also gained by about a percent. Both the Tata shares (alongwith metal shares buoyed by positive news regarding MittalÆs bid for Arcelor) provided cheer to otherwise lacklustre Indian bourses which closed relatively flat at 10,413.