Tata Group Pays US$677M for 30% Stake in Vitaminwater-maker Energy Brands
By Vinnee Tong
Associated Press
August 23, 2006

NEW YORK (AP) - The Indian conglomerate, Tata Group, on Wednesday said it would take a 30 per cent stake in Energy Brands Inc., maker of Vitaminwater, a move designed to capitalize on the health-obsessiveness of consumers that has driven sales growth of bottled water drinks.

Tata, which makes Tetley and Good Earth teas, said its board had approved the $677-million-US purchase to buy out the stake owned by the TSG Consumer Partners private-equity group.

"It's big step for us to be able to pursue our long-term plans," Darius Bikoff, founder of Whitestone, N.Y.-based Energy Brands, said in a conference call.

Bikoff said the company's immediate task was increasing shelf space in stores to meet demand for the company's Vitaminwater, Smartwater and Fruitwater drinks, which Energy Brands sells under the brand name Glaceau.

"With this partnership, we'll have the resources to ensure people can get Vitaminwater when and where they need it," he said, adding that this year the company experienced growth of more than 100 per cent.

Bikoff founded the company 10 years ago and said the transaction valued it at $2.2 billion. He predicted Engergy Brands could reach a valuation of $10.2 billion within three to five years through growth of about 70 per cent in U.S. sales alone.

"We get there through essentially filling the demand for product," he said.

Bikoff said Tata and his company share a common vision to make healthier drinks, and he said Glaceau hopes to eventually enter the tea business, of which Tata has a significant presence. The Indian company is the world's second-largest tea producer and sells its product in 40 countries, according to its website.

Merrill Lynch analyst Christine Farkas said in a research report Wednesday that the ready-to-drink tea market "has staged a remarkable resurgence since 2004, growing at double-digits annually."

She said four major sellers dominate the industry. Splitting about 95 per cent of the market are Ferolito, Vultaggio & Sons, which makes Arizona Beverages; PepsiCo Inc., which makes SoBe and Lipton iced teas; Snapple-maker Cadbury Schweppes PLC and Coca-Cola Co., which makes Nestea.

Bikoff also said he would consider partnering with beverage powerhouses Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) as distribution partners to enable global expansion. A partnership with PepsiCo would mark an improvement in Glaceau's relationship with the world's second-largest soft-drink maker.

PepsiCo settled a lawsuit with Energy Brands in early May over allegations that its SoBe Life Water too closely imitated Glaceau's electrolyte-enhanced Vitaminwater. Under the settlement, PepsiCo agreed to change the packaging and cap of its drink, which Glaceau had called a "slavish knockoff."

Bikoff said the company this week would introduce smaller, 12-ounce bottles to be sold in four-packs at Safeway and CVS stores initially, before rolling out the new sizes nationally.

Mumbai-based Tata said the purchase strengthens its presence in the U.S. and provides opportunities for global growth of its drinks business.

The Tata Group owns 93 operating companies spanning seven business sectors and more than 40 countries. It had global revenue of $22 billion in 2005-06.

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