HOUSE OF TATA : ACQUIRING A

GLOBAL FOOTPRINT

Arun Menon
Amit Tarnekar(32198)
Harsh Doshi(32119)
Mansoor Khan(32172)
Nikkita Tekriwal(32145)
Vaibhav Vichare(32302)
Vezoto Theluo(32300)
 Background Tetley-Tata deal
• Feb 2000: Acquisition of UK Based Tetley by Tata tea
• Leveraged buyout ( Tetley 3 times the size of Tata tea)
• Tetley deal : 271 million pounds
• 70 m pounds contributed by equity and 45 m pounds by
raising GDR
 Rationale behind Tetley Acquisition
• Growth in tea industry less in India, so need to explore newer
markets
• Need to change from a commodity tea producer to a branded tea
company
• Tetley's Global presence and leading brand - Market leader in
Britain and Canada and a popular brand in the United States,
Australia and the Middle East
• Tetley not a part of any large consumer good conglomerate –
ease of acquisition
• Provided insulation it needs from low commodity prices in India
to higher-priced and more evolved global tea market
 Comparison of Tata Tea & Tetley

(3/31/00) – (3/31/01) Tata Tea Tetley

Turn Over $207 million $417 million

Operating Profit $36.0 million $42.6 million
Employees 59,740 1,100
Tea Estates 54 0
Key Markets India Britain, Canada, Australia,
United States
 Value chain before Acquisition

TATA TEA: Developing Market

TETLEY: Developed Markets

 Operational synergies
Merger Tata tea –pre Tetley –pre Consolidated –post acquisition
implication acquisition acquisition

Position in 40 % turnover 100 % turnover from Company has move up the value
the value from packet packet tea/tea bags chain-80 % turnover from packet
chain tea/tea bags tea/tea bags

Increased Produced 90 % Outsourced entire tea 70 % of Tata tea req. outsourced

outsourcing of the tea req. from 35 countries from 20 countries ( reduction of
requirements (procurement of 3m risk arising out of fluctuation in
in house kg of tea every week) production arising out of
different factors

Predictable Margins highly Margins were not Margins hedged

margins correlated with correlated to tea
tea cycles cycles

Global Domestic UK and US accounts Global presence

footprints operations for bulk sales
 Operational synergies
• Pooling of global talent within Tata Tea’s businesses to
develop and execute an integrated business plan
– Management and expertise in Teltey retained
• Cross-utilisation of distribution channels for tea, coffee sales
resulted in increased profitability
REVENUES POST ACQUISITION
3500

3000

2500

2000 Turnover
EBITDA
1500 PBT

1000

500

0
1983 1989 1993 1996 2000 2003 2006
 Synergies from the deal
• Tata was one of the lowest cost steel producers & Corus was fighting to
keep its productions costs under control .
• Tata had a strong retail and distribution network in India and SE Asia.
Hence there would be a powerful combination of high quality developed
and low cost high growth markets
• Technology transfer and cross-fertilization of R&D capabilities .
• There was a strong culture fit between the two organizations both of
which highly emphasized on continuous improvement and Ethics.
• Economies of Scale.
• Increase in profitability.
• Backward integration for Corus and Forward integration for Tata Steel.
 REASONS FOR ACCEPTING THE DEAL

TATA STEEL CORUS

• To tap European Mature Market. • To extend its Global reach through
• Cost of acquisition is lower than setting up of
TATA.
Green field plant & marketing and distribution
• To get access to Indian Ore reserves,
as well as virgin market for steel.
channel.
• To get access to low cost materials.
• TATA manufactures Low Value ,long and flat steel
• Saturated market of Europe.
products ,while Corus produce High Value
Stripped products.
• Decline in market share and profit.
• Helped TATA to feature in Top 10 players in world.
• Technology Benefit.
• Economic of scale.
• Corus holds number of patents and R&D facilities.
 Post Acquisition Strategies
INTEGRATION EFFORT
• Tata steel's Continuous Improvement Program ‘Aspire’ with the core
values :Trusteeship, Integrity, respect for individual, credibility and
excellence.
• Corus's Continuous Improvement Program ‘The Corus Way’ with the core
values : code of ethics, integrity, creating value in steel, customer focus,
selective growth and respect for our people.
• As the core values of the two companies were same so Tata used ‘Light
Handed Integration Approach’.
• Top management of the company remained same.
 Pitfalls of the deal
• High value paid. Approximately 7.7 times its Enterprise Value.
• Corus’ EBITDA was at 8% which was much lower as compared
to Tata Steel’s 30%.
• Debt of US $ 6.14 was raised against the cash flows of Corus.
It was a risky proposition.
• Tata’s debt equity ratio was adversely affected to 2.74:1 from
1.1 which it was maintaining earlier.
• Fast consumption of Tata Steel’s captive iron ore reserves as
production capacity increased from 5.3 million ( estimated for
50 years at this capacity) to 27 million tons of steel per
annum.
 The Road Ahead
• Integration has to be fast and efficient.
• Increasing reach to joint entity to 4 continents and 45
countries including high value market of Europe.
• Increasing the EBITDA to 25% for joint entity by
executing Tata steel’s brownfield and greenfield
projects well in time.
• Increasing the capacity of the company beyond 50
million tons by 2015 so as to become one of 3 top
steel producers in the world.
 PRE-ACQUISITION OPERATIONS
TATA MOTORS
• Huge Loss of $105 Million in 2000-
01
• Challenge of De-risking the cyclical
nature of its commercial truck
business
• Pressure to Internationalize because
of Intensifying foreign competition
• Tata Motors needed to develop
more advanced products to stay at
par with its competitors
• Product Target was mainly on the
bottom of the Pyramid market.
JAGUAR LAND ROVER
• Ford who owned both Jaguar and Land
Rover had Lost $12.6 billion in 2006
• Both Jaguar and Land Rover part of
Premier Automotive Group ( PAG ). PAG
post a loss of $4.8 billion loss in 2004-
06
• Jaguar Biggest contributor of loss.
• Strong Union served an ultimatum
opposing the closing down of the three
factories by any acquiring company
• Jaguar and Rover shared factory in
Liverpool as well as technology and
Business operations
 TATA MOTORS GROWTH STRATEGY
Growth Strategy
• To consolidate position in the
market and expand
international foot print through
development on new products
by
- Leveraging in house
capabilities
- Acquisition and strategic
collaborations to gain
complementary capabilities
1984 : India’s 1st LCV (407 truck)
1996 : India’s 1st SUV (Safari)
1998 : India’s 1st Passenger Car (Indica)
2004 : Acquisition of Tata Daewoo, Korea
2005 : India’s first mini-truck (Ace)
2005 : Acquisition of stake in Hispano,
Spain
2007 : Formed an industrial JV with Fiat
2007 :JV in India with Marcopolo of Brazil
2007 : JV in Thailand with Thonburi
2008 : People’s car – Tata Nano
2008 : Acquisition of Jaguar Land Rover
 WHY ACQUIRE JLR ?
1 Long term strategic commitment to automotive sector

2 Opportunity to participate in two fast growing auto segments (premium and small
cars) and to build a comprehensive product portfolio with a global footprint
immediately
3 business diversity across markets and product segments

4 Unique opportunity to move into premium segment with access to world class iconic
brands
4a Land Rover provides a natural fit above TML’s Utility vehicles/SUV/Crossover offerings
for the 4x4 4a premium category
4b Jaguar offers a range of “Performance/Luxury” vehicles to broaden the brand
portfolio
5 Sharing of best practises between Jaguar, Land Rover and Tata Motor in the future

6 Long-term benefits from component sourcing, low cost engineering and design
services
 POST-ACQUISITION OPERATIONS

TATA MOTORS JAGUAR LAND ROVER

• Total Revenue from the Brands • Easier Credit availability from both
as on 2008 was US$12-13 billion Indian as well as foreign bank to
support cost cutting measures,
• Tata Motors gets access to increase volumes and more intensive
technologies, especially for off- research
roading, such as the Terrain • New Management team with more
Response systems of Land Rover emphasis on improving the
and other resources at Jaguar companies operation
• Tata Global by increase by 29% • Increased Sales
at 85,114 vehicles, August 2010 2010 Increase %
Jaguar 24919 31 %
Land Rover 67840 52 %
Thank You