Do Mergers and Acquisitions Create Value for Acquiring-Firm Shareholders? A Case Study of Tata Consumer Products’ Acquisition of Capital Foods

Abstract

Mergers and acquisitions (M&A) are among the most important strategic decisions available to corporations, but whether acquisitions actually create value for shareholders remains contested. This paper examines whether Tata Consumer Products Limited’s (TCPL) acquisition of Capital Foods created value for TCPL shareholders. Announced on January 12, 2024, the transaction valued Capital Foods at approximately ₹5,100 crore and gave TCPL control of brands including Ching’s Secret and Smith & Jones. The analysis combines an event study of TCPL’s share-price reaction around the announcement with a discounted cash flow (DCF) valuation of Capital Foods and an assessment of the target’s subsequent financial performance. The event study indicates a positive announcement-day abnormal return of approximately 2.41%, suggesting that investors initially viewed the acquisition favourably. The cumulative abnormal return over the wider event window was also positive. However, the DCF analysis produces a much more cautious conclusion. Under the base-case assumptions, the estimated enterprise value is approximately ₹5,040 crore, broadly close to the ₹5,100 crore purchase price. This indicates limited initial valuation headroom. Post-acquisition performance provides some support for the strategic rationale of the transaction. Capital Foods' revenue increased from approximately ₹705.5 crore in FY2023 to ₹799 crore in FY2025, although this growth was more moderate than the assumptions used in the base-case valuation model. Overall, the evidence suggests that the acquisition was strategically sensible and received a positive initial market response, but the transaction did not generate an unequivocal valuation gain at the acquisition date. The ultimate creation of shareholder value therefore depends on TCPL's ability to achieve sustained revenue growth, margin expansion, distribution synergies and international scale.