Ending months of speculation, Tata Tea today announced the acquisition of 25 per cent stake in Mount Everest Mineral Water for Rs 115 crore. The announcement comes within a week after the company pulled out of the American beverage market by selling its stake in Glaceau in Coca Cola.

The acquisition will be done through direct purchase of 10 per cent stake from the promoters of Mount Everest and picking up 15 per cent stake through subscription of fresh shares. Subsequently, Tata Tea will launch a 20 per cent mandatory open offer. All the offers will be priced at Rs 140 a share, nearly seven per cent higher than Mount Everest's closing of Rs 130.90 on the BSE.

Tata Tea will have to chip in Rs 95 crore if the open offer is fully subscribed, taking the acquisition cost up to Rs 220 crore for 45 per cent stake.

The acquisition will give Tata Tea, which is in the process of transforming itself from a tea company to a beverage firm, entry into the country's growing beverage market. The Rs 1600 crore beverage market, which is growing at over 30 per cent rate, is dominated by Parle Bisleri, Pepsi and Coke.

Parle Bisleri, which sells under the Bisleri brand, is the market leader. Coca-Cola's Kinley and Pepsi's Aquafina brands are also catching up.

Tata Tea Vice-Chairman R K Krishna Kumar told reporters at a morning function in the city: "The beverages market is moving into newer areas and the market is changing. We want to be present in all segments except alcohol."

In a note released before the acquisition announcement, Citi group said Tata Tea could scale up the sale of Himalayan brand by leveraging its distribution reach.

"Tata Tea's scale could also scale up margins through operating leverage," it said in the research note.

Mount Everest sells mineral water with Himalayan brand. It has a strong franchise network. It has one of the largest natural mineral water units in Asia. It says in its website that the product is graded equivalent to Groupe Danone's Evian and Nestle's Vittel water brands.

Tata Tea, at the time of pulling out of Glaceau last week by selling its stake for $1.2 billion, nearly twice the amount it paid to buy 30 per cent 10 months ago, said it will use the money for purchases in the US and India.