The share price of McLeod Russel India Limited (MCLEODRUSS.NS) went on a roller-coaster ride in September after two companies made offers to acquire the debt-ridden firm. Insolvency proceedings had forced the owners of the venerable tea venture to consider being acquired in order to repay several banks and other lenders.
Carbon Resources, a private company that manufactures specialized metal alloys for making battery electrodes, acquired 5% of the troubled firm on Sept. 20. It offered to pay in full McLeod's debts to secured lenders and 55% of loans to unsecured creditors. McLeod Russel's stock price rose 63%, from 22 rupees on September 14 to 38 rupees per share on September 20, triggering an automatic sales halt following the share purchase.
Investors soured on the stock the following week after learning that MK Shah Exports, India’s largest exporter of orthodox tea, had presented lenders with an alternative offer immediately before the annual general meeting. The share price fell by 7.2% for the year through October 4.
McLeod is owned by the Brij Mohan Khaitan Group of Kolkata. The tea division produces 44 million kilograms annually at gardens in India, including two in Bengal and 31 in Assam, as well as holdings in Vietnam and Africa. While McLeod's tea business is sound, bad investment decisions in the energy-technology sector led to outsize debts of approximately 1,700 crores, more than $210 million.
McLeod's management expects banks to support its debt restructuring plan, pending clearances from credit rating agencies.
Chairman and managing director Aditya Khaitan did not discuss the competing offers at the company’s annual general meeting, according to a report in India's Business Standard newspaper, but sought to reassure shareholders: “We have managed to navigate through severe turbulence over the last few years only because you all have stood behind us like a rock… You may rest assured that we are confident that together we shall overcome other storms that may come our way in the days ahead.
"The only way forward for the company is to go through the quality route for India, increasing the orthodox production to take care of the vacuum created due to Sri Lanka. Also, with the rupee depreciating, the overseas market looks attractive, and your company has a good export track record," Khaitan told investors.
Carbon Resources, a manufacturer of battery electrodes, seems an odd match for a tea producer, but a spokesman for the company told Bloomberg News that the takeover would diversify its sources of revenue and add scale. The intent is a “clean, one-shot resolution for McLeod Russel, and that is what we have offered,” said Carbon Resources.
The offer from MK Shah was equally generous. In 2018, that company acquired eight McLeod tea gardens.
The competing offers present a quandary to the bankruptcy regulators, shareholders, management, and lenders as they seek to resolve the company's standing.
McLeod dates back to 1869, when English Capt. J.H. Williamson and Richard B. Magor first began growing tea in Assam. The firm remained in British hands until 1987, when the Khaitan family purchased the company to form the McLeod Russel group. Profits were substantial, and in 1994 McLeod purchased 51% of battery maker Eveready Industries, from Union Carbide. Eveready supplied half of India's demand for batteries and flashlights,
In 2000, the privately held McLeod went public. In 2004, it split into two separate companies, with McLeod producing and marketing tea and Eveready manufacturing batteries and flashlights.
McLeod began a buying spree in the 2010s, becoming the largest bulk tea company in the world for a time. It sold off some tea gardens in recent years but remains a very large producer.