The proposed deal between Tata Consumer and Coffee Day for acquiring the latter's coffee vending machines business is facing some turbulence.
Sources suggest that the Tata Group has asked the Coffee Day Group to act on its offer in the next few weeks, and has also raised concerns about the tax and legal issues of the promoter family.
Tata Group and Coffee Day have been in discussions for several months in this regard. The original term sheet by Tata Consumer to Coffee Day had, in fact, expired in the first week of November, following which the former had informally given one month extension for the talks to close.
However, as the deal continues to remain stuck, sources tell CNBC-TV 18 that the Tata Group has written to Coffee Day board late November, seeking closure of the deal in the next few weeks, preferably by the end of the year.
Sources say Tata could reconsider the deal if the talks are not closed soon, which could also lead to the Group walking away.
The talks between Tata Consumer and Coffee Day are mainly stuck on a valuation mismatch. Coffee Day was seeking Rs 2,000 crore for the coffee vending machines business, under which it currently operates around 50,000 machines across offices in the country,.
However, Tata's offer on the table is of Rs 1000 crore, and that again has a rider.
Tata Group is looking to first invest only Rs 600 crore in the first instalment, and the rest would be done based on the performance of the business, sources said.
This has not gone down well with some of the lenders, who are unhappy with the haircut in the valuation. In fact, some of the banks that Coffee Day owes dues to have not yet given a NOC to the deal, and are first demanding that the coffee group first clear the dues.
Talks between Coffee Day and the lenders are actively on to get a green signal for the deal, one which Tata Group seems to be timing.
For Tata Group, the concern is not only about the delay, the group has also raised concerns about the tax and legal liabilities of the promoter family.
Founder VG Siddhartha had been on the Income Tax department’s radar till his death in July last year.
An internal Investigation report reported in July had shown that a personal entity set up by Siddhartha, the Mysore Amalgamated Coffee Estates Limited (MACEL) had siphoned off Rs 3,535 crore from seven subsidiaries of the company. The company has now appointed Justice. KL Manjunath, a retired Judge of the Karnataka High Court to suggest and oversee actions for recovery of the dues from MACEL and to help on any other associated matters.
The report from the former judge is still due and is being watched by the Tata Group as well as tax officials.
Sources say Tata Group will include an indemnity clause in the deal to ring-fence itself from the liabilities of the promoter family of Coffee Day.