CVC Capital Partners is injecting €210 million into its struggling tea business, acquired from Unilever for €4.5 billion, as the private equity firm aims to avert a potential debt restructuring for the producer of PG Tips tea bags.
As the performance of the world's largest tea manufacturer deteriorates, the price of a €1.575 billion loan issued by Lipton has fallen from 95 cents on the euro early last year to 71 cents. Investors now demand a yield of 19% to hold the debt.
During a period of high inflation and rising interest rates, Lipton has struggled under the weight of €3.2 billion in debt.
According to import data from the UK's tax authority, tea consumption in Britain has been slowly declining as younger consumers switch to coffee. Although tea consumption is still growing in key markets like the US, China, and India, the growth is driven by herbal and health-focused "functional" teas, rather than traditional black tea.
Lipton, which also owns the Pukka herbal tea brand, has seen its annual revenue fall from €2 billion before the spin-off to €1.57 billion in 2024, partly due to discontinuing underperforming product lines. In the latest publicly available data for the first half of 2025, revenue declined by 13% to just under €700 million.
Rating agency S&P stated last September that Lipton could face a liquidity shortfall or debt restructuring within 12 to 18 months if its performance fails to improve. Multiple restructuring advisers have noted that Lipton has been on their watchlist for over a year.
A restructuring partner at a major US law firm commented, "This is a large capital structure that is simply too highly leveraged for the products it sells," adding that a solution to its debt burden "is a matter of when, not if."
Lipton will attempt to calm investor nerves at a bondholder meeting on Wednesday.
According to a company spokesperson, CEO Marc Busain, who joined Lipton last October, will outline his turnaround plan. The strategy is based on strengthening online sales, focusing on faster-growing segments of the product portfolio such as herbal teas, and fostering a more "performance-driven" culture.
In addition to the cash injection, CVC has appointed Mars's former CEO, Grant Reid, as the new chairman.
People familiar with the matter said the separation process from Unilever was more complex and costly than CVC had anticipated. The brands had been under-invested, and market share is being lost to competitors like Yorkshire Tea, according to these sources.
Two people directly involved stated that during its time under Unilever, the quality of Lipton tea gradually declined as the consumer goods group sought to improve profit margins.
An adviser who worked on the deal said, "They overpaid," adding that for the investment to succeed, CVC "needed to improve quality significantly and quickly. But they couldn't because they had to control costs."
Just three months after CVC agreed to buy Lipton, the Russia-Ukraine war broke out. The subsequent surge in fuel and commodity prices drove up production costs and squeezed consumer budgets. Now, conflict involving the US, Israel, and Iran risks triggering a new wave of inflation.
S&P indicated at the end of last year that it expects Lipton's adjusted leverage ratio—the ratio of net debt to earnings—to remain above 10 times. Credit investors typically view companies with leverage over 6 times as risky.
Frequent management changes have also hindered the turnaround effort. Lipton's first CEO, former L'Oréal executive Nathalie Roos, stepped down in 2024 after two years. Then-Chairman Pierre Laubies served as interim CEO until Busain took over last October.
Multiple traders reported that hedge funds bought large amounts of Lipton's debt at a discount last year, hoping to profit from a restructuring or a recovery in value.
One high-yield credit investor described Lipton as "a business with weak fundamentals, poor execution, and extreme leverage."
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