ACI Ltd has decided to hand over its 50% stake at Tetley ACI (Bangladesh) Limited to its joint venture (JV) partner UK-based Tata Consumer Products Overseas Holdings, a concern of Indian-origin Tata.
According to a Dhaka Stock Exchange filing on Sunday, the foreign principal owning the tea brands Tetley and Tata would pay ACI Tk10.62 crore for half of the JV firm.
The two groups also agreed to entitle ACI to receive variable consideration of up to Tk3.38 crore even after the divestment.
"The tea business was not making money, despite the quality of its products," ACI Ltd Chairman M Anis Ud Dowla told The Business Standard on Sunday.
"While the principal Tata Consumer Group is looking for full control of the company as part of its global plan, we decided to sell our stake," he added.
Formed in 2002, the JV has been locally blending and marketing Tetley and Tata branded tea across the fast-growing Bangladesh market. The principal has been looking after the management and brands, while ACI has been taking care of production and distribution.
The two groups are preparing for share transfer sooner, ACI said in its regulatory filings.
Even after the divestment, ACI would continue its role in production and distribution for at least two years, its chairman told TBS. The function would entitle ACI to earn the Tk3.38 crore in variable consideration mentioned in the regulatory filing.
The second divestment this year
This is ACI's second announcement of complete divestment from a JV in fiscal 2022-23.
Earlier in July, ACI announced a similar surrender of its 24% stake to the principal at Asian Consumer Care Private Limited, its Dabur, Vatika products manufacturing and marketing joint venture with an overseas arm of another Indian consumer products giant Dabur.
"ACI's divestments and the principals' complete acquisitions of the JVs are amicable ones and part of all our strategic preferences," M Anis Ud Dowla said.
According to ACI's annual report 2021, the sale of a minority stake in the Dabur, Vatika business helped ACI realise a decent five times capital gain as its total capital injection in the 2003 JV was Tk11.52 crore and it sold the stake at Tk60 crore.
However, ACI is set to book nearly two-thirds losses from the tea business as it is selling its stake at only Tk10.62 crore, while its total investment was Tk32.5 crore.
ACI valued its half stake at Tetley ACI (Bangladesh) at negative Tk1.59 crore at the end of fiscal 2021, when its tea sales dropped by 20% due to the pandemic situation.
Anis Ud Dowla on Sunday said the tea business has recovered a lot and is doing better now.
When British multinational Imperial Chemical Industries divested from its Bangladesh arm ICI Bangladesh Manufacturing Ltd in 1992, it's then-top executive Anis Ud Dowla's takeover turned the company into Advanced Chemical Industries (ACI) Ltd.
The one pharmaceutical company having made aggressive ventures into a wide range of verticals, its growth strategy has already emerged as a top-tier local conglomerate that grew its annual turnover to around Tk10,000 crore.
Alongside its core business of pharmaceuticals, it expanded into consumer products including toiletries, homecare, hygiene, electrical, electronics, mobile, salt, flour, foods, rice, tea, edible oil, paints, agribusiness, farm mechanisation, automobile, plastics, retail chain and many other with strong market leadership in many segments.
The company has 15 direct subsidiaries to handle the empire while following the announced divestments this year ACI will have two JVs - ACI Co-Ro Bangladesh and ACI Godrej Agrovet Pvt Ltd.
ACI has built a track record of partnering with the world's leading brands in the segments where it has no own brand.
It also has instances of selling businesses to other companies.
However, its strategy of leveraged expansion for aggressive topline growth, and market leadership often creates pains for its shareholders who look for consolidated profits every year.
Having secured a consolidated quarterly turnover of over Tk2,600 crore, ACI posted Tk18.9 crore in losses for the July-September quarter this year, against Tk30.1 crore in net profits for the same period last year.
Its total liabilities stood at over Tk7,000 crore at the end of September.
ACI shares having a face value of Tk10 each closed at the floor price of Tk260.2 on the Dhaka Stock Exchange on Sunday.