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Lactalis says Tirumala violated non-compete clause

Tension is brewing between Lactalis, the world’s largest dairy player, and the promoters of the Andhra Pradesh-based Tirumala Milk Products, which was acquired by the French firm early this year for Rs 1,800 crore.

According to sources familiar with the developments, Lactalis is likely to take the legal route against Tirumala promoters for breaching the non-compete agreement signed at the time of the acquisition.

Sources close to Lactalis said that a new dairy business has been launched in Guntur district of Andhra Pardesh with the knowledge of Tirumala promoters.

While a detailed query sent to Lactalis on December 1 did not elicit any response, one of the promoters of Tirumala, Bolla Bramha Naidu, who is a politician belonging to the YSR Congress party, 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, who was the former MD of Tirumala, said that his loyalties were with Lactalis. “Though I have exited Tirumala, I continue to support Lactalis. I extend my fullest co-operation to them.”

When pressed further on whether he was aware of Lactalis’ plans to pursue legal options, he denied knowledge of it, saying that if he was served a legal notice, he would respond appropriately to it.

In January 2014, the $ 20-billion Lactalis had announced the acquisition of 100% stake in Tirumala Milks. Though the deal size was not disclosed, it was reported at about $ 275 million (Rs 1,800 crore).

Tirumala, the second largest private dairy company in South India was founded in 1996 by D Brahmanandam, Bolla Brahma Naidu, B Nageswara Rao, Dr N Venkata Rao and R Satyanarayana. The US-based private equity Carlyle was holding 20% stake in Lactalis while promoters were holding the rest.

The Rs 2500-crore Tamilnadu-based Hatsun Agro Products is the largest private sector diary in India.

India is the world’s largest milk producer, accounting for nearly a fifth of the world’s produce. A report by the Associated Chambers of Commerce and Industry of India sees the dairy industry in India reaching Rs 5 lakh crore in turnover by 2015. It said production would rise to about 190 million tonnes (mt) in 2015 from 123 mt in 2011.

In a similar case, Delhi-based Sagar Ratna Restaurant promoter, Jayaram Banan was sued by private equity firm IEP last year after breaching the non-compete agreement and launched a new restaurant after he sold his business to IEP.

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