History of the Deal:

Before we begin to understand as to how the deal was arrived at, it is important to look at the relevant challenges surrounding. We have broadly divided these challenges into two categories – External and Internal.
External Challenges
These are the challenges, that Tata Tea, and to some extent Tetley Tea were facing as far as the Tea Industry was concerned.
• There was an increased level of competition, and it didn’t look like it was going to reduce anytime soon. Some of the African countries such as Kenya were fast increasing Tea Production, and exporting them. The quality of this tea was good enough to compete with the Premium that Indian Tea once commanded.
• The consumption patterns were changing, and it was not good for both Tata Tea, and Tetley Tea. Russia had been a prominent importer of Indian Tea in the past, but steadily it had reduced its imports from India drastically. The Tea Consumption in UK, Ireland etc. had been reducing drastically. This was not good news for the British Giant Tetley Tea. Trends in Tea Consumption in developed countries were not encouraging wither.
• Due to Supply-Demand disparity in favour of Supply (Supply being more than demand), the prices of Tea were falling globally. Even though India had around 30% share in the Tea Market around 1995, due to diversity available in the variants of Tea, it could not control the global Tea prices.
Internal Challenges
These are the challenges looked at from the point of view of Tata Tea and Tetley Tea specifically, as far as their coming together was concerned.
• Tata Tea was no doubt a huge company as far as its business was concerned. But when we put it in the context of it contemplating to acquire Tetley Tea, we need to look at the fact that Tetley Tea was even bigger. In terms of revenues, Tata Tea was half the size of Tetley Tea. Such an acquisition by an Indian Company wasn’t even close to a regular norm at that time.
• Cross-cultural issues are bound to occur, when we consider merger or acquisition involving an Indian Company and a British Company. There would have been diversity in the skills of each of the employees, and the organizational culture itself would have been different. Where Indian managers are perceived to be comparatively more close to changes, British managers are perceived to be quite open. The religious and ethnic beliefs add to it. These examples just show that the prospect of the employees of these two countries working together wouldn’t have been perfectly smooth.
• Since Tata Tea was to acquire Tetley Tea, there was also an issue as to how British employees would react to British Managers in the context that India had been a British Colony half a century ago.
• Given the size differences of Tata Tea and Tetley Tea, there was some thinking on Tata Tea’s part as to how exactly to integrate the two companies. The debt levels in their books were stimulating this challenge.
But, if there were so many challenges, why were both Tata Tea and Tetley Tea eager to take this deal ahead? It was because, the external challenges mentioned above were negatively hampering business of them both, and they were confident that following synergies justify the deal.

Synergies
• Revenue Synergy – The consolidated revenues of Tata Tea and Tetley Tea were slated to be higher, which was one of the motives to go for this acquisition as far as Tata Tea was concerned.
• Operations Synergy – Tata Tea had a large number of tea gardens, whereas Tetley Tea had expertise in buying tea from global auction market and sell it under their own brand after processing it. These two models could come together well resulting in better downstream operations, creating a greater net positive effect.
• Synergies in the Management – This deal being cross-border, there was possibility of challenges in this regard. However, on the bright side, there was also a scope for synergy in the Management Practices.
• Line and Width Synergy – The combined entity resulting from this deal would have a very good width of operations, and vertical integration that would enable it to compete anywhere in the market.