Lactalis likely to sue Tirumala promoters over non-compete clause

Tirumala promoters deny breaching non-compete pact

Tension is brewing between Lactalis, the world’s largest dairy company, and promoters of the Andhra Pradesh-based Tirumala Milk Products, which Lactalis acquired early this year.

According to sources familiar with the development, French firm Lactalis is likely to take the legal route against the promoters of Tirumala for breaching a non-compete agreement signed during the acquisition. Sources close to Lactalis said a new dairy business had been launched in Guntur district of Andhra Pradesh, with the knowledge of the Tirumala promoters.

While a detailed questionnaire sent to Lactalis on Monday did not elicit any response, Bolla Bramha Naidu, a promoter of Tirumala and a politician from the YSR Congress, said the separate dairy business was set up by ex-employees of Tirumala. “I have nothing to do with the new dairy that has been launched. I have exited Tirumala and I am not in the know of things,” he added.

Naidu, former managing director of Tirumala, said his loyalties were with Lactalis. “Though I have exited Tirumala, I continue to support Lactalis. I extend my fullest cooperation to them.” Pressed further on whether he was aware of Lactalis’s plans to pursue legal options, he denied any knowledge of the matter, saying if he was served a legal notice, he would respond appropriately to it.

In January this year, the $20-billion Lactalis had announced the acquisition of 100 per cent stake in Tirumala Milk Products. Though the deal size was not disclosed, it was reported at about $275 million (Rs 1,800 crore).

PAST TROUBLES

• In 2007. The Wadias sued Danone, as the latter had invested in Avesthagen, violating a non-compete agreement
• In 2011-12. Unitech dragged Norwegian firm Telenor to court, citing breach of non-compete clause. Telenor was said to be in taks with Sterlite Industries and SREI Infrastructure, which ran mobile tower firm Viom Networks, to be its partner
• In 2013 PE firm IEP sued Jayaram Banan of Sagar Ratna Restaurants for breaching a non-compete agreement by launching a new restaurant

Tirumala, the second-largest private dairy firm in south India, was founded in 1996 by D Brahmanandam, Bolla Brahma Naidu, B Nageswara Rao, N Venkata Rao and R Satyanarayana. Before the acquisition, Carlyle, the US-based private equity firm, held 20 per cent stake in Tirumala Milk Products, while promoters held the rest.

India is the world’s largest milk producer, accounting for about a fifth of the global produce. A report by the Associated Chambers of Commerce and Industry of India had estimated by 2015, the turnover of India’s dairy sector would stand at Rs 5 lakh crore.

Production would rise from 123 million tonnes (mt) in 2011 to about 190 mt by 2015, it had added.  The Rs 2,500-crore Tamil Nadu-based Hatsun Agro Products is the largest private dairy in India. In a similar case, Jayaram Banan, the Delhi-based promoter of Sagar Ratna chain of restaurants, was sued by private equity firm IEP last year.

It was alleged Banan had breached a non-compete agreement by launching a new restaurant after selling his business to IEP.