A CASE OF TATA-JAGAUR ACQUSITION

TATA MOTORS

Formerly known as TELCO (TATA Engineering and Locomotive Company). Part of the Tata Group, and one of the world's largest manufacturers of commercial vehicles.

India's largest passenger automobile and commercial vehicle manufacturing company.

Tata Motors was established in 1945, when the company began manufacturing locomotives. The company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG, which ended in 1969.

Company Profile

It is the 5th largest medium and heavy commercial vehicle manufacturer in the world. listed in BSE, NSE & NYSE.

Subsidiaries JAGUAR CARS LAND ROVER TATA DAEWOO COMMERCIAL

Jaguar

Jaguar was founded as the Swallow Sidecar Company by Sir William Lyons in 1922, originally making motorcycle sidecars. The Jaguar name first appeared in 1935. The company's product was - a 2.5L sedan named the SS Jaguar, where "SS" stood for "Swallow Sidecar". It adopted the "Jaguar" name in 1945.

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Jaguar went through a lot of mergers and demergers. It bought the Daimler Motor Company, in 1960. Jaguar merged with the British Motor Corporation (BMC) to form British Motor Holdings (BMH) in 1966. Then came the merger with Leyland in 1968, which had already acquired Rover and Standard Triumph. The resultant entity was named the British Leyland Motor Corporation (BLMC).

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Jaguar was floated on the London Stock Exchange in 1984. Then, it was purchased by the Ford Motor Company in 1990 for $2.5 billion.

TATA MOTORJAGUAR deal process

12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar. August 2007 - Major bidders were identified Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management Indias Tata Motors and M&M arrive as top bidders ($2.05b & $1.9b) 03/01/2008 Ford announces Tatas as the preferred bidders 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors.

Why was Ford selling?

Reports said losses at Jaguar stood at USD 715 million in 2006. Jaguar has been a dog i.e. it has not been able to provide any profit for ford because of the high manufacturing costs provided in the United Kingdom. The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007. Bringing down production costs and turning around the company successfully was the challenge. It was a test that Ford failed. Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar is so intertwined.

Why Tata acquired JLR?

Long term strategic commitment to automotive sector. Opportunity to participate in two fast growing auto segments.

Increased business diversity across markets and products.

Land rover provides a natural fit for TMLs SUV segment. Jaguar offers a range of performance/luxury vehicles to broaden the brand portfolio. Benefits from component sourcing, design services and low cost engineering.

 TAMO's flagship ancillary biz. Customers inc. Ford, Daimler, FIAT etc.

Leader in the automative grade steel. 16% of revenue fron auto steel division.

TACO

TATA Corus

TCS
Provides engineering design, manufacturing solutions and sourcing services. Major customer include Chrysler, Ford , GM etc.

INCAT

Provides services like supplier programs, consulting services and global outsourcing. Customers include Chrysler, Ford, GM etc.

Tata-JLR Merger Agreement

100% stake in Jaguar TAMO has acquired the business & initially they will be operated & land Rover independently of the partner. Business

3 Plants in UK 2 advanced design & engineering center 26 National sales company

These are well invested plants 4-5000 engineers engaged in testing, prototype design & powertrain Engineering, development & integration. Both existing national sales companies of jaguar/land rover & also those that are carved out of current Ford operation

Intellectual property This covers all key technologies to be transferred to JLR & rights perpetual royalty free license on technologies shared with Ford Capital Allowance Support from Ford Motor Credit A minimum guaranteed amount of $1.1 bn which will help managing in Tax going forward Ford Motor Credit will continue to support the sales of JLR for around next 12 months

Pension Ford will contribute $ 600 mn of the Pension Fund Contributed by Ford

TATA - JLR deal

Tata Motors raised $3 billion (about Rs 12,000 crore) through bridge loans for 15 months from a clutch of banks. JP Morgan, Citigroup, and State Bank of India. Tata came under cash crisis because of the Corus deal and the huge investments in the TATA Nano project. The credit rating companies also took a negative outlook toward this deal because of the huge debt requirement to complete the deal.

TATA Merger with JLR

FORD

TATA GROUP

JLR
Subsidiary of FORD

Forward Triangular Merger

TATA MOTORS

Subsidiary of TATA GROUP

Type of merger
Market Extension Cross Border

Financial Impact

Total acquisition cost at $3bn assumed to be debt-funded on TAMOs books. Financial Impact: Leverage increased.

Headline Debt/Equity of TAMO increased to 2.5x from 1x.

LEVERAGE BUYOUT - Definition

The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

Is deal really worth it?

There was immense pressure from the shareholders, analysts community etc. to abort the deal. Because it was over priced and the balance sheet of TATA was not in a position to absorb more loan. Ford purchased JLR at $5 bn and sold at almost half the price to TATA after operating it for losses for few years. As the market would have recovered from recession the valuation would have increased.

Tata would not have been able enter into the premium segment (>10 lakhs) in India.
TAMO would have lacked in robust designing capabilities.

References

http://www.tata.com/company/releases http://wikipedia.com http://www.123jump.com/marketanalysis/Tata-and-Jaguar-RoughRoad-Ahead http://domainb.com

THANK YOU
Presented By: Anurag MBA (3rd Sem)