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Merger of McLeod Russell (India) ltd., With Eveready Industries India Ltd.: A
case of Serial Merger leading to value creation
The reason behind merger of Mcleod Russel (India) Ltd. (MRIL) with Eveready Industries (India)
ltd. (EIL) can be anything but synergetic. Mcleod Russel 9India) ltd. Is into manufacture of tea.
Selling it in bulk, whereas Eveready Industries India ltd. Is into batteries business.
The reason cited for the merger was that, the vast marketing and distribution channels of EIL
may be used for marketing newly introduced branded tea of MRI:. However, the price at which
it was bought and the financing of the money paid to Union carbide – the original owner of EIL,
is even now debatable. Whether MRIL was too immature in estimating that batteries and tea go
together as far as distribution channels are concerned or was the company correct in getting
an established ready – made marketing its packaged tea albeit at an extra cost – is the big
question. The answer lies in detailed analysis.
Company Profile – Mcleod russel (India) Ltd. Incorporated on 19 th March, 1976 Mcleod Russel
(India) Ltd. Is one of the major players in the Indian tea industry. The company belongs to the
Group – Williamson Major which is headed by a well known industrialist Mr. B.M. Khaitan. The
company has 21 tea estate / gardens which are situated in the prime tea producing centers of
the country, i.e. 13 Assam and 8 in west Bengal. Apart from these the company has 2 gardens
in Gingia and Tarajulie in Assam which produce Orthodox tea. While all the other tea estates
predominantly produce CTC (crush, Tear, curl) tea.
The company has 21 factories (9 of which are on lease) which manufacture tea. Bulk of the tea
produced by MRIL is sold through auctions. But in the recent years, the company has been
entering the value added segment in the tea Industry and has been launching tea brands. In the
domestic retail tea market, the company has a polyback brand “premium Gold” in the domestic
retail market. This brand is predominantly sold in Northern and western India. In audition to it,
MRIL has launched “Planters Pride‟, a packet tea product of the Darjeeling gardens. MRIL also
directly exports a significant portion of its produce. In financial year 96, the company launched
its own brand of Packet Tea by the name of “TEZ” which was initially, launched in the States of
U.P. and Tamil Nadu. The launch of „TEZ‟ and the renewed focus on the existing brand known
as “Premium Gold” is a step of the company‟s towards participation in the growing value added
segment of the Tea Industry.
The Williamson Magor Group – a profile Growth Through enterprise
The multi – core, well diversified Industrial Entity that is epitomized today in the name and style
of THE WILLIAMSON MAGOR GROUP, which apart from being one of the largest producers of
quality tea in the world from its fifty – three tea estates located in Darjeeling, the Dooars and
mainly in Assam, also has an eminent position in such areas as foils, industrial, defence,
automotive and consumer batteries, engineering, both heavy, light and electrical as well as
mining equipment. Added to this formidable array of activities, the group is also actively involved
in international trading, leasing and financing and corporate and investments both in the
National and International arenas. The transition of the group, from a modest but promising start
in tea cultivation, to a highly regarded industrial Group spanning a gamut of activities which

forms an integral part of the entire Indian Economy and earns valuable Foreign exchange for
the country, has been achieved over a period of 125 years, with the last twenty years witnessing
the accelerated transformation of the Group from an exclusive tea manufacturer and exporter,
to a formidable industrial conglomerate, and presents a fascinating saga of the spirit of
enterprise natured and developed by three prominent and enlightened families.
Two of these families, the Williamson Family and the magor Family hail from U.K. and were
amongst the pioneers in establishing their presence and in the development of the tea industry
in India. The third
Family, which traces its lineage from one of the finest families, originally from Rajasthan, namely
the Khaitan Family, has played a crucial role in enhancing and developing the present wide
horizons of the Williamson magor Group.
The group, originally bearing the name WILLIAMSON MAGOR which symbolized the successful
partnership of the Williamson and magor Families respectively, suffered the loss of the
presence of the Williamson Family in the late fifties. This void was fortuitously filled with the
timely entry of the Khaitan Family. The patriarch of the family, Mr. B.M. Khaitan took the reins of
the Company and firmly guided its impressive growth in the Tea Industry in a rare display of
entrepreneurial harmony with the magor Family, based in the United Kingdom with long lasting
and intricate ties with the Tea Industry in India.
The tremendous goodwill of the corporate entity of Williamson magor was by then established in
the tea industry and it was from this well this well built base that the Group, spearheaded the
vision and foresight of Mr. B.M. Khaitan, began treading the path of diversification. This was
manifest in the merger of another premier British Company, Macneill & Barry Limited, which had
wide ranging interests in tea. Office equipment and engineering, with Williamson Magor, in 1974
– 75. With the activities of the merged Group now encompassing more than just tea, it was
logically to identify the Group by re- naming it MACNEILL & MAGOR.
Never one to rests on his laurels, Mr. B.M. Khaitan looked further ahead and widened the
horizons by intricately timing the acquisitions of the two other pivotal corporate entities, namely
India Foils Limited and standard Batteries Limited, both holding pre-eminent positions in their
respective fields. This was closely followed by another well – conceived investment – this time
in the Group‟s original area of activity – tea. With the induction of the Mcleaod Russel / Makum
– Namdang Group of tea companies – a medium sized but highly profitable constituent of Tea
Industry, into the larger Macneill & Magor Group, the conglomerate of Macneill and magor
achieved its zenith in the Tea Industry, by merging as the largest producer of tea worldwide.
In keeping with contemporary management philosophy, vertical integration of the wide based
group had been achieved. The most recent phase of this phenomenal growth of the Group was
witnessed by the astute move of acquiring the Indian Business of the famous multi – national,
Union Carbide, which amongst other product lines was and is best known as the producer of the
brand of EVEREADY” Batteries.
Today, the group is acknowledged as one of the finest in the country with keen entrepreneurial
skill visibly evident at the very top and reflected in the next generation of both of these unique
and talented families – Mr. Philip magor, son of Mr. R.B. Magor is actively involved with the

traditional Tea Activities of the group while Mr. Deepak khaitan and Mr. Aditya Khaitan, sons of
Mr. B.N. Khaitan are at the helm of affairs in India, ably guiding the group to the 21 st century to
be fully capable of meeting the technological challenges of the future with conviction in the
corporate philosophy that changes for the sake of change in an organization is as dangerous
as blind loyality to the past. It is a well conceived and implemented blend of continuity and
innovation that makes the difference between a mere legal corporate entity and one which is
truly geared to continually strive for higher performance, while simultaneously fulfilling more
than its expected role as a responsible corporate citizen of the country.
Acquisition of Union Carbide Ltd. By W & M Group
The priced Union Carbide India Ltd. Now changed to Eveready Industries India Ltd. (EIIL) has
been acquired by four W & M group companies – McLeod Russel (the flag ship of W&M group,
Namdang Tea, Williamson Finacial Services and Salsar Industrial Services – with the former
taking the lead. The justification in acquiring EIIL at an investment of Rs 290 crore was justified
by the goodwill, brand equity enjoyed by the Eveready brand and the country – wide marketing
network of EIIL. Also, the group felt that it could leverage the huge distribution and marketing
network of EIIL for selling MRIL brand tea in packets not only in cities but also in remote
villages. To acquire a controlling stake in EIIL McLeod Russel resorted to borrowings in a big
way through a financial arrangement with a consortium of banks and financial institutions for
bridge finance for Rs.250 crore and an internal accruals of Rs.40 crore the company acquired
the controlling stake of EIIL. The company planned to retire this costly debt through a Euro –
issue but decided against it and planned to raise the money through a rights cum public issue.
In 1995, McLeod Russel (India) Ltd. Planned to raise Rs. 302 crore through rights-cum public
issues.
But the right –cum public issue of 1,59,39,500 equity shares at a premium of Rs.180 per share
in May / june 1995 was not successful mainly due to the depressed market conditions and also
due to the high premium charged by the company, though the group companies fully subscribed
to the issue(but it was subscribed fully according to the company in the annual report for the
year 1995 -96).The impact of the high cost of borrowings is clearly visible in the increase in the
borrowings of the company from Rs. 30.75 core in financial year 94 to Rs. 398.80 crore in
financial year 95. The result of the high interest rates, dealing operating margins affected the
profitability of the company. The operation margins in financial year 96 declined to 22 percent
from 29 percent in financial year 95. In the same period, the net margins slipped to 2.61 percent
from 12.62 in financial year 95 due to high interest costs. But the net profits of the company
were buoyed up in the period from Rs.9.81 core in financial year 94 to Rs. 17.49 crore in
financial year 95 and to Rs. 28.00 corer mainly due to high other income of Rs. 16.13 crore in
financial year 95 and Rs. 22.66 corer in financial year96.
Major Subsidiary
Union Carbide of India Ltd. (UCIL)
The company made a modest beginning in India in 1905 with marketing of dry batteries and
flashlights with a consignment of batteries valued Rs.500. Ever – ready Co. (Great Britain) Ltd.

Started manufacture of dry cell batteries at Calcutta in 1926 with a capacity of 60 lakh cells a
year with imported components. Ever – Ready Co. (India) Ltd. Bought over the Ever – Ready
Co. (Great Britain) in 1934 and was incorporated in that year in India as private company. The
name. The name of the company was changed to National Carbon Co. (India) Ltd. In 1941 and
to Union Carbide India Ltd. In 1959. The battery facility was further expanded and in 1940 a
large battery plant with an initial capacity of 40 million dry cells was established in Calcutta. In
1956 the company set up the first zinc rolling mill to manufacture zinc alloys and photo
engraves‟ plate at Calcutta. In 1959 a modern flashlight case factory was inaugurated at
Lucknow. Chemicals and plastics plant was commissioned in 1961.
It set up a petrochemical complex in Bombay and a naphtha cracking unit along with associated
facilities was inaugurated in 1966. Plant was set up at Calcutta in 1965 for the manufacture of
midget electrodes & cinemas are carbons. Battery plant at Hyderabad was set up in 1966.
Pesticides formulation plant at Bhopal commenced production in 1969. In 1971 the electrolytic
manganese dioxide plant at Bombay was commissioned. In the same year the company
commenced marine products operations – 100% EOU. In 1979 the company completed the
expansion facilities at Bhopal for basic technical required to produce a range of MIC – based
pesticide.
By the 1980s, UCIL diversified its product range and was into batteries, carbon and metals,
plastics, marine products and agricultural chemicals, eventually the scope of the operations
increased and the company operated 15 plants at eight locations, including the headquarters in
Calcutta. Bhopal pesticides plant remained closed from December 1984 following gas leak at
MIC plant. The leakage of MIC a deadly poison claimed more than 4000 lives and more than
20,000 injured. After the leakage the Bhopal unit was closed as in early, 1985 the Government
of India cancelled the operating license of the Bhopal plant clearing the way for the plant‟s
dismantlement. After a few months after the disaster, the parent company Union Carbide
Corporation (USA) faced lawsuits in amounts far exceeding the company‟s net worth. A further
few months later, the efforts of the parent company to recover from the disaster and restore its
favorable public image suffered further due to leakages in the company‟s chemical plants in
USA. A few years later the parent company was taken over by GAF Corporation USA which
increased its stake in the company. Till the end of 1985, there were few indications of progress
in the settlement of the lawsuits against the company and UCIL was essentially out of the
pesticide business although the company‟s other divisions, especially those involving the
batteries and flashlights remained profitable. In 1989 the Chemicals and plastics unit at Mumbai
was bought over by Oswal Agro Mills. In 1994, the company was taken over by Mcleod Russel
Co. of Williamson Magor Group which acquired 50.9% stake in it.
Product Groups
The various product groups of the company include dry batteries, flashlights, electrolytic
manganese dioxide, carbons and metals and trading. The takeover of erstwhile Union Carbide
by Williamson magor group was mainly to utilize the vast distribution network of the company.
The company in the few years tried to utilize the distribution network to sell detergent products
under an arrangement with SPIC Fine Chemicals Ltd. But due to operational difficulties the sale
of detergent products was discontinued during the last quarter of the financial year 96. During
financial year 96, the company commenced marketing, distribution and sale of packet tea

procured from the group company Mcleod Russel (India) Ltd., under the brand name „Tez‟. The
product was initially launched in the States of Uttar Pradesh and Tamil Nadu, and the results
have been encouraging. In the beginning of financial year 97, the company entered into an
agreement with Hindustan Latex Ltd. For the distribution of condoms under the well established
brand name “Nirodh”.
Geographic Scope of operations
Plant Locations and their major product/s
1. Calcutta (Calcutta, WB) Batteries, Arc photo Engravers‟
Plates / Strips for printing, Carbon Electrodes
2. Chennai (madras, TN) Batteries
3. Hyderabad (Hyderabad, AP) Batteries, Electrolytic Manganese Dioxide
4. Lucknow (Lucknow, UP) Flashlight Cases, Castings, hard Facing & Tube Rods
5. Srinagar (Srinagar, J&K) Batteries
Product Market Scope
Operations Review of EIL in financial Year96
Dry Battery Cells
The strong recoveries of the Indian economy and good industrial growth have helped in higher
demand for consumer goods and commodities including dry batteries and flashlights (the major
products) of EIL.
The dry battery market was buoyant during the year, and “Eveready” battery sales increased by
12% over the previous year to record an all time high of 655 million pieces. In financial year 96,
the company launched several new products, and has chalked out plans for capacity expansion
and modernization so as to remain ahead of the anticipated growth in demand. In financial year
96, capacity utilization and productivity at the company‟s plants improved with the actions
initiated in earlier years, In financial year 96, the company received technology inputs from
Eveready battery Company Inc., USA (EBC) for improving carbon zinc battery and flashlight
operations. This would help the company in improving plant efficiencies, process capabilities
and in implementing the world Class maintenance program at all manufacturing location, which
is an identified key thrust area for developing World Class Manufacturing competency.
Flashlights
Production of flashlights at the company‟s Lucknow plant was high despite labor troubles.
Flashlight sales were at 9.4 million pieces for which demand continues to be strong.
Carbons and metals
Despite stagnant market and increased competitive activity, sales of both cinema are carbons
and photoengravers‟ plates were maintained at the previous year‟s levels.

Electrolytic Manganese Dioxide
Domestic sales of the products improved significantly as exports were unremunerative due to
lower international prices.
Joint venture
The company in financial year96 entered into a joint venture with Ralston Purina Overseas
battery Company Inc. USA 9the owner of the Eveready brand name world wide) to develop the
Alkaline battery business in India under the world – renowned brand “energizer” and under the
company Energizer India Limited (EIL) in which EIL holds 49 percent and PROBC holds 51
percent. The distribution and sales of this niche product by the company has been encouraging.
Diversification
During financial year 96, the company marketed silver oxide watch batteries under the
“Eveready” brand name and plans to eventually manufacture these batteries. The company is
also exploring opportunities for diversification and growth in other sectors of the battery industry,
including the rechargeable segment, as well as exports. The company has progressed well for
setting up a state of the art plastic processing unit for manufacturing components for captive
consumption as well as battery operated plastic appliances.
Expansions
The company is implementing a Rs. 40 crore project at Tamil Nadu for the manufacture of 30
million pieces of alkaline battery. It also hopes to spend a substantial amount on modernization
and up gradation of existing facilities at all plants. The company has about 45% market share in
1.30 billion dry cell market and sells its products under the brand name Eveready. The company
is further expanding capacity with a view to meet the growing demands. Eveready is setting up
a plastic processing unit for the manufacture of components for captive consumption and
battery operated plastic appliances.
Project
Location
Project
Type
Product
Capacity
Cost
Status
Alkaline Battery
Project
Chennai, Madras (TN)
New Unit
Alkaline batteries
30.00 mln.pcs.
40.00 crores
Under implementation
Solid Performance
The financial performance of Eveready Industries Ltd recorded significant gains during financial
year 96, with both sales and profits recording new highs. The performance of the company has
been noteworthy that despite sever competitive pressures, sales volume of dry batteries, the
major product line of the company, increased by 12 percent resulting in an increase of sales

from Rs. 364.67 crore to rs. 411.52 Crore. This enabled the company‟s net profit to improve by
9% to Rs. 26.71 crores. The actual net profit increased to Rs. 34.36 crore in financial year 96 an
increase of 40% over the previous year if the sale of investments of Rs. 7.65 crore too are
included.
Merger
According to the management Consultancy Mckinsey & Co had advised the company a couple
of years back on the restructuring of the group. Subject to various approvals, McLeod Russel
(India) is to be merged with its subsidiary, Eveready Industries India (formerly Union Carbide
India) with retrospective effect from 1, April 1996. The merged entity is to be called Eveready
Industries India Ltd. The share exchange ratio has been decided as three shares of mcleod
Russel (India) for two shares of Eveready Industries. The logic for the merger as enunciated by
the company is that, the products of McLeod Russel i.e. tea is to use the distribution network of
McLeod Russel comprising of 4,000 distributors having direct access to 5,00,000 retail outlets to
market teas. Accordingly, the company plants to use EIIL‟s massive marketing network for
promoting Tez, an extra strong CTC tea brand that MRIL has launched. Before the merger,
MRIL sold around 95 percent of its tea in bulk form. In addition to the above, the merger was to
provide financial synergies and the post – merger entity will be in a position to substantially raise
its borrowings limit than Rs.300 crore each for both the companies before the merger. At
present, the Williamson Magor group holds about 62 percent in Mcleod Russel, while financial
institutions hold 14 percent in it. Foreign holdings are about 14 percent and the public and
others hold about 9 percent in Mcleod Russel. In the post –merger entity, the Williamson magor
group is expected to have a stake of about 46 percent, financial institutions will have a stake of
about 23 percent and 31 percent stake will be with the public and others.
Why they should not merge?
After the merger Williamson Magor group will now be driven by batteries rather than by tea. Of
the Rs.570 crore combined turnover of the merged company, nearly 70 percent will come from
batteries.
Also in practice the merger has been a cover – up to merge a financially weak company mcleod
Russel with a profit making Eveready industries Ltd. In financial year96, the cash flow from
operations of MRL were a negative Rs. 4.4 crore as against Rs. 3.42 crore in financial year 95.
While for EIIL, the cash flow from operations were a positive Rs.30.9 crore in financial year 96
as against Rs.8.43 crore in financial year 95.
Two, there are no operational synergies between the distribution of Batteries and tea though
EIIL has one of the strong retail outlets in the country. The selling cycles for the two are also
different. While tea sales reach a peak in the first week of the month, battery cells sell evenly
through the month. Selling tea and batteries will have to be two separate businesses. For
example carbon zinc batteries are sold in the electrical outlets and miniature batteries in watch
shops. Again Tez tea is at times sold in hot tea shops. The only place where they are sold
together are at the grocers.
Three, the images of the two companies are differently perceived in the market. While EIIL
enjoys a solid brand equity with a market share of 50 percent in the dry cell batteries. In contrast

MRIL is a player in the commodity business of selling loose tea and is closely moving towards
the branded segment of the market.
Four, while MRIL has shown a growth of 6 percent in financial year 96 indicating that the Tea
market is maturing and batteries market is growing at significant rate of 15 percent annually
indicating that MRIL would be drag on the fast growing batteries business. In addition to it, EIIL
is fast diversifying into silver Exide watch batteries and alkaline battery business which requires
substantial capital expenditure and are synergistic to the present business of EIIL.
In addition to the above reasons, the share prices of the two companies have moved in a
curious manner on the bourses when the merger was in the offing. While McLeod Russel‟s
share price declined from around Rs. 112 on 29 August to Rs. 89 on 23 September, the day
before the merger was announced. But in the case of EIIL, its share price slide from around
Rs.160 in mid – July to Rs. 122 on August 29, but rebounded to Rs. 142 in the three weeks
leading to the merger. The differences between the share prices of the two companies on 23
September – Rs.53 justify the merger ratio of two EIIL shares for every three shares of McLeod
Russel. But if the merger were to take place on 30 August, the ratios would have been different
indicating that shareholders of EIIL were at a loss.
Question:
1. Comment on the merger of these two companies keeping in view the value increase by
the business for both the companies.
Reference:
This case was developed based on discussion with Mr. Srutikanta Paul, the then
Executive Director of Williamson Megor for a workshop on merger and strategic alliance
for the senior level managers of Eveready and WM Group. Copy right A. Dutta ©