Bisleri-Tata Deal | A once-in-a-decade deal which will have a multiplier effect

It has almost been three decades since Ramesh Chauhan sold his stake in Thums Up, Gold Spot, and Limca to Coca-Cola. Now, he would be divesting Bisleri International to Tata Consumer Products Limited (TCPL) for around Rs 6,000-7,000 crore. As part of the overall deal, it is expected that the current management would continue for two years following the closing of the transaction. Chauhan has not demonstrated interest in retaining a minority stake after having disposed of the business.

As one of the top three FMCG companies in the industry, Tata strives to be a leader in the fast-moving consumer goods sector. With the acquisition of Bisleri, along with pre-existing products like Himalayan, Tata Copper Plus Water and Tata Gluco+, the TCPL is likely to emerge as the market leader.

The Indian retail market has undergone a significant transformation, and witnessed incredible growth. Around 8 percent of India’s employment, and it contributes over 10 percent of the country’s Gross Domestic Product (GDP). Post-pandemic, the retail sector observed a decline in the market size of 8.5 percent in FY 2021. Although the online sector sustained its growth momentum; the traditional and organised retail sector had to witness a major hit.

India’s retail sector is worth $836 billion in FY 2022, with an 81.5 percent contribution from traditional retail. According to a BCG-RAI report titled ‘Racing Towards the next wave of Retail in India’, the Indian retail industry is likely to witness 10 percent annual growth to reach approximately $2 trillion by 2032.

In order to continue the growth momentum in the retail industry, such acquisitions are beneficial for the retail ecosystem. The largest acquisition (by deal value) was Walmart, the world’s largest retailer, acquiring a 77 percent stake in India’s leading e-commerce marketplace Flipkart for $16 billion. Similarly, in August 2020, Reliance Retail Ventures Ltd. acquired Future Group’s retail and wholesale business, and logistics and warehousing business for Rs 24,713 crore.

As far as the implications on competing players are concerned, the proposed deal is likely to have a considerable impact. Mostly, when an acquisition takes place in the market, the other players in the industry also engage in a bidding war for remaining targets, which usually results in overvalued transactions. Furthermore, apart from a scenario where an acquisition results in a monopoly, when two robust players in the market join forces, the competitiveness of the market automatically tenses up. This often leads to reduction in the prices because of the consolidation in market, and higher productivity.

On the macro level, the prices of similar products should reduce given the increased variety to benefit the consumers. However, as a result of the acquisition, the smaller companies may be forced to exit the market owing to cutthroat competition. The effect of the proposed combination would result in a bigger space for the Indian retail sector — not only limited to packaged mineral water segment. The logic behind the proposed combination is clear — cost synergies as also cross-selling of Tata’s water brands to Bisleri. Furthermore, with more than 5,000 delivery trucks and over 4,500 distributors’ network, Tata will be getting higher volume — a 30 percent share of the organised market, and value-add to its existing brands.

While the proposed combination would bring in a cost savings and effectiveness for the merged entity, the deal construct could trigger certain sectoral regulations. The Competition Commission of India will have to be notified of the proposed combination and relevant approvals will have to be taken in the event that prescribed thresholds are crossed. The standards of drinking water will have to be met in accordance with the applicable regulatory specifications.

The proposed transaction would indeed constitute a marriage of two iconic brands that evoke trust in the consumers. With its tremendous inventory, sales volume, and network coverage, Bisleri would certainly bring a substantial market share of the packaged mineral water segment to the hands of the TCPL. It is estimated that revenue of the TCPL will be increased by 10-15 percent in the subsequent years, which will reflect on its share prices. In a word, this is ‘once in a decade’ deal, and will have multiplier effects on the overall Indian retail industry.