Post merger analysis of TATA and JLR

TATA motors acquired JAGUAR and lANDROVER from its former owner FORD MOTORS an 2nd of june 2008, the world economic scenario was on a downturn during this time and its impact was clearly visible in the automobile sector. Moreover JAGUAR as well as LANDROVER had been making losses under their former owner for many years before being acquired by TATA MOTORS, however Ratan Tata was of the belief that acquiring JAGUAR AND LANROVER may not result in an instant success but will surely be fruitful in the long run. The management of TATA MOTORS visualized the valuable intangible assets like the research and development as well as the brand value hidden behind JAGUAR AND LANDROVER which would bring in handsome results for them in the long run. Some of the factors on basis of which the post acquisition performance can be analysed are discussed below: ➢ MARKET CAPITILISATION Two months before it acquired JAGUAR AND LANDROVER (JLR) in March 2008, TATA MOTORS had a market capitalisation of Rs 24,000 crore. Five months after the deal, it had plunged to Rs 6,500 crore. The market as whole during that time negated the acquisition as both the companies JAGUAR AND LANDROVER had been making losses under their former owner ford motors, however there was an opportunity hidden in exploring the strong brand value and research and development hidden behind both the companies and eventually this opportunity was utilized to the fullest extent by tata motors and its market capitilasation now stands at 71500 crore which is more than a tenfold rise from the initial post acquisition low. ➢ BRAND VALUE Rescently TATA MOTORS drove past Reliance Industries to top the 2010 edition of India’s Most Valuable Brands survey with a valuation of $8.45 billion. A major part of this success can be attributed to the JAGUAR AND LANDROVER brands. Jaguar and land rover both have been part of a larger conglomerate for a long time, however their potential was not unlocked then, TATA MOTORS succeded in doing that. Jaguar and landrover steadily started regaining their rhythm in the market and contributed towards creating a good brand value for TATA MOTORS. TATA MOTORS-JLR brand soared 172% in one year to $8.45 billion from only $3.1 billion in 2008-09. ➢ CASH FLOWS AND BOTTOMLINE

Jaguar sales for the month were 5.613 crore) for the quarter ended June against a loss of £64 million in the corresponding quarter. Cumulative sales of Jaguar are 21. post capital and product development expenses the first such instance since the deal. higher by 31%. .408 nos.. Cumulative sales of Jaguar Land Rover for the fiscal are 76. higher by 50%. Moreover It posted a profit of £221 million (Rs 1. while cumulative sales of Land Rover are 55.539 nos.386 vehicles.. higher by 30%.676.131 nos. higher by 59%.710. higher by 26%. higher by 31%.During the quarter ended june 2010 JAGUARLANDROVEr has generated a positive cash flow of £23 million.. The margin expansion was driven by cost cutting measures and currency tailwinds as well as sales of higher variants of landrover and increasing sales in china and usa ➢ TOPLINE JAGUAR LANDROVER global sales in July 2010 were 19. while Land Rover sales were 13.

26 lakh vehicles in the year 2007.RATIONALE FOR THE ACQUISITION The sale of jaguar and landrover was initiated by their former owner ford. Tata motors acquired both jaguar and landrover for an amount of 2.5 billion in 1989 and it acquired landrover from bmw in 2000 for $2.3 billion whereas ford acquired them for a total sum of 5. This would not have been possible had the market been announced for a combined sale of both jaguar and landrover. Ford acquired jaguar for $2. various factors ignited the sale of jaguar and landrover by ford and bidding for its purchase by tata.6 billlion in the year 2006. tata did not pay even half of that amount. the market was not on its flow hence it was a good time for tata motors to get hold of jaguar and landrover at a reasonable price. landrover however was performing steadily though not at its best. The reason which could be best associated with this strategy is that ford wanted to get rid of jaguar on one hand which had been making losses and realize a good amount by offering landrover for sale also which would not have been possible by offering jaguar alone. moreover jaguar and landrover being two unique brands with distinctive features would attract more bidders. landrover was driven by a record sale of 2. the biggest ever in its 103 year history. some of them are discussed below: ➢CUMULATIVE LOSSES FOR MANY YEARS Ford made losses of 12.7 billion. the us auto major put both of them on sale in june 2008 . UNAVAILABILITY OF OTHER OPTIONS No other brands with so good research and development facilities was available for tata motors to get hold of at such a reasonable price TARGET SELECTION . most of it was a result of bad performance of jaguar. ➢GOODTIME TO GET HOLD OF TWO UNIQUE BRANDS FOR TATA MOTORS Automobile industry was well affected by the economic downturn.

acquiring jlr would give tata an opportunity to explore and utilize the r&d to generate greater revenues in the long run. LONG TERM COMMITMENT TO AUTOMOBILE SECTOR Tata motors is engaged in production of various range of vehicles for different customers. acquiring jlr would give a chance to further explore the automobile industry and hence would be a step further towards its long term commitment to automobile sector. Moreover tata gor two advance design studios and technology which would help them to improve their core products in india like indica and safari had problems of internal noise and vibration.There are various reasons to justify the strategy of tata acquiring jlr. LONG TERM ECONOMIES OF SCALE Acquiring jlr would help tata for component sourcing. design services and low cost engeenering which would in the long run reduce the cost of production and and facilitate in increasing the bottomline BROADEN THE BRAND PORTFOLIO Jaguar and landrover would broaden the brand portfolio of tata motors with a variety of performance and luxury vehicles. which in the long run would act as a catalyst to boost revenues and create brand value. RECOGNITION TO OWN THE CHEAPEST CAR AS WELL AS MOST LUXURIOUS CARS . Exploring intangible opportunities Jaguar and landrover are distinguished brands with good research and development behind them. Tata motors generated 90% of its revenue from the Indian market acuring jlr would help in diversifying its revenue generating sources. some of those are discussed below: ➢ GLOBAL FOOTPRINT Acquiring jaguar and landrover would give tata an enormous opportunity to penetrate global market. landrover being a natural fit for tml’s suv segment.

tata’s decision to acquire jlr at this point of time was not accepted positively. some of the major problems are discussed below PRE ACQUISITION PROBLEMS: FINANCING THE DEAL Just before acquiring jlr. Tata motors faced a lot of problems while acquiring jlr starting from funds to investor’s unacceptance. acquiring jlr would result in a cost synergy for tata motors PROBLEMS DURING ACQUISITION Tata motors acquired jlr when the world automobile industry was rationalizing its products and deffering the research and development works. tata had acquired corus and moreover tata motors had undergone huge capital expenditure to bring nano into the market and hence financing the acquisition was a major concern for tata motors INVESTOR DISAGREEMENT Investors were not in favour of the decision of acquiring jlr at that time . infact tata motors itself had gone in for rationalization and retrenchment stratigies. Investors believed . both jaguar and landrover were loss making units and automobile industry at that point of time was under pressure of downturn. the impact of downturn was clearly visible in the automobile sector with a decrease in world revenue of around 10%. it was negated at many stages.Acquiring jlr would give tata a recognition in the market of being the owner of the cheapest car nano as well as premium cars like jaguar svx COST COMPETITIVE ADVANTAGE Corus being the major supplier of automotive high grade steel to jlr and other automobile industries in usa and Europe.

Tata motors had yet to pay 2 billion towards the bridge loan . FALL IN SHARE PRICE Tata motor’s share prices dropped in the market after acquisition of jlr because of the investor perception that it was not the right time to invest in that acquisition.that the balance sheet of tata motors was not strong enough to absorb more loans UNFAVOURABLE ECONOMIC CONDITIONS ESPECIALLY IN THE TARGET MARKET During the acquisition the worldwide car sales were down by 5%. which were the major factors influencing the earnings volatility. INEXPERIENCE IN HANDLING LUXURY BRANDS: Tata motors had never ventured into luxury car segment before acquiring jlr. moreover difficult economic conditions prevailed in the key markets comprising usa and Europe. moreover the investor thought that it was the time to be conservative and stabilize reserves rather than insourcing more debt burden. bmw. POST ACQUISITION PROBLEMS: DEBT BURDEN To finance the acquisition tata motors raised a bridge loan of 3 billion through consortium of banks by the end of 2009. when tata had recently undergone huge capital expenditure for the nanao project. hence the inefficiency in handling such segment hampered tata motor’s operational efficiency for quite some time. moreover it required additional funds and that too quickly to keep the operations running. lexus and infinity . STRONG COMPETITION Tata motor’s strategy to penetrate global market through acquisition of jlr faced hurdles in the form of strong competition from global automobile giants like Mercedes. especially in singur and the results were still unrevealed. the automobile industries over the world were rationalizing to conserve funds.

however recorded growth in sales but in declining trend TATA acquired both the brands at $2. which is less than half of the price that ford paid for acquiring both of them that is $5.7 billion Due to stringent availability of funds and huge capital expenditure incurred in NANO project simultaneously. former owner FORD. LANDROVER.3billion.EVALUATION OF THE ACQUISITION Acquisition of JLR by TATA can be evaluated on the basis of various advantages and disadvantages associated with the project: ADVANTAGES DISADVANTAGES Acquisition of two well known JAGUAR was a loss making unit at the automobile brands that is JAGUAR time of being acquired from its and LANDROVER. TATA had to face debt burden .

proceeds of which were to be used to part finance the JLR deal of rs. tata motors was completed on june 3. about Rs.3 billion on a cash free debt free basis THE LEVERAGE BUYOUT SCENE Tata motors raised $3 billion . 12000 crore through bridge loans of fifteen months from a clutch of banks including JP MORGAN.RATAN TATA was of the view that it was the right time to invest as the price was cheap and there were lot of hidden opportunities to be explored in the strong r&d of jlr Investors believed it was rather a time to conserve funds. moreover the balance sheet of TATA MOTORS was not in a position to absorb more loans TATA got an opportunity to establish Increasing compettion from global a global footprint giants like MERCEDES. 9228. 7200 crore via rights issue .75 crore The rights issue raised the equity capital of TATA MOTORS by 30-35% by . CITIGROUP. 2008 as it bought the ownership of luxury brands. JAGUAR and LANDROVER for $2. develop domestic brands which in turn is subject to more volatility Wide diversity from being the owner Inexperience in handling luxurious of the world’s cheapest car to owner brands like JLR of luxury brands like JLR FINANCING THE ACQUISITION The biggest buyout in automobile space by an automobile company. LEXUS and INFINITY Insourcing technical knowhow of JLR Benefits to be received in the long to achieve economies of scale and run without short term visibility . and STATE BANK OF INDIA Company charted out plans to raise rs. BMW.

2000 CRORE 5 YEAR .1 bn which will help managing in Tax going forward Support from Ford Ford Motor Credit will continue to support the sales of JLR for Motor Credit around next 12 months Pension Contributed Ford Ford will contribute $ 600 mn of the Pension Fund by .march 2009 TATA MOTOR’S STRATEGY TO FUND JLR DEAL: Ordinary equity shares with full voting right (rs. Rover Business 3 Plants in UK These are well invested plants 2 advanced 4-5000 engineers engaged in testing .5% CONVERTIBLE PREFERANCE SHARES(OPTIONALLY CONVERTIBLE INTO A CLASS EQUITY SHARES AFTER 3 YEARS BUT BEFORE 5 YEARS FROM THE DATE OF ALLOTMENT) CONSIDERATION RECEIVED 100% stake in TAMO has acquired the business & initially they will be Jaguar & land operated independently of the partner. 2200 crore) A CLASS EQUITY SHARE WITH 1 VOTE FOR EVERY 10A SHARES WORTH RS.prototype design & design & powertrain engineering Engineering . development & integration center 26 National sales Both existing national sales companies of jaguar/land rover company & also those that are carved out of current Ford operation Intellectual property rights Capital Allowance This covers all key technologies to be transferred to JLR & perpetual royalty free license on technologies shared with Ford A minimum guaranteed amount of $1. .net/expkarma/tata-j-l-r-deal http://economictimes.

000 crore. Tata Motors’ market cap has now moved up to Rs 71.000 crore over the past two years. he was right and the markets were wrong. As it turns out now.500 crore. “The two are terrific brands. says that the markets did not understand the capability of JLR brands to drive future cash-flows when the deal was struck. Five months after the deal. “Companies and investors need to come to grips with this new wealth creation algorithm. the markets began to assign them a fair value. “The minute you unlock some of that potential. “Jaguar and Land Rover were part of a larger conglomerate (Ford). immediately the understanding of what is possible with these brands is reflected in an increased value.45 billion.” Unni Krishnan.500 crore.) And the company drove past Reliance Industries to top the 2010 edition of India’s Most Valuable Brands survey with a valuation of $8. it had plunged to Rs 6. But as JLR revenues started revving up post acquisition. Tata Motors had a market capitalisation of Rs 24. There is terrific R&D behind them. the markets didn’t see much value in the two marquee labels – both of which had been loss making for many years under the management of the former owner Ford Motor Company . But group chairman Ratan Tata saw an opportunity in JLR’s intangible assets. But where did all this value that has been unlocked come from? At least a part of the answer lies in the value of the Jaguar and Land Rover brands.” Unni Krishnan adds. So the market couldn’t value them (at the time of the deal). (There have been equity infusions worth Rs 15.” he had remarked in August 2008. CEO and MD of Tata Motors. MD of BrandFinance India . It is for us to put them into products. more than a tenfold rise from the post-acquisition low.Two months before it acquired JaguarLandRover (JLR) in March 2008. which did the Most Valuable Brands study in exclusive partnership with The Economic Times. That’s one big reason behind Tata Motor’s soaring market capitalisation. At that time. .” says Carl-Peter Forster.

45 billion from only $3. so we are confident of sustaining the current run rate. “Almost all the Land Rover models and the Jaguar XJ have a waiting period of 2-3 months.” A shift in product mix towards higher margin vehicles. higher prices of the new 2010 range of models and new product launches such as the Jaguar XJ had led to better top line of £2. according to Mr Forster. the stronger a brand develops.” says Mr Forster.3 billion and operating profit of £339 million for the quarter ended June 2010. favourable response to new models and rapid progress with restructuring and cost reduction. says that JaguarLandRover’s average realisations rose 22% to £38. “This specific element of putting long-term brand values before short-term interest is important. “The margin expansion was driven primarily by currency benefits.35 billion has been generated because the JLR brands are now demonstrating an ability to drive cash flows. Cost-cutting measures and currency tailwinds on its side helped JLR record a substantial profit margin of 15. “It could rise further if the production of the Jaguar XJ is scaled up. Jatin Chawla. says BrandFinance. says. It didn’t cut back on . The JLR business is benefiting from a combined impact of robust demand.According to the Most Valuable Brands report pegs. post capital and product development expenses during the June 2010 ended quarter – the first such instance since the deal. One reason for this success. It posted a profit of £221 million (Rs 1. analyst at India Infoline . JaguarLandRover has generated a positive cash flow of £23 million.209 per vehicle.” he says. improved product mix (sales of higher variants in Land Rover) and improved regional mix (higher sales from China and the US). C Ramakrishnan. analyst at Fortune Financials: “JLR has managed a recovery in volumes commensurate with a global recovery. the value of the Tata Motors-JLR brand soared 172% in one year to $8. chief financial officer of Tata Motors.” he adds. is the Tata Group’s relentless focus on long-term value.5% as against the 10% recorded in the preceding January-March 2010 quarter. A large chunk of Tata Motors’s incremental brand value of $5. Agrees Mahantesh Sabarad. The more you do that.1 billion in 2008-09.613 crore) for the quarter ended June against a loss of £64 million in the corresponding quarter.

The Evolution of a Corporate Brand. and on the whole Tata executives have shared this view and been content to maintain a longer distance. racism and xenophobia all constitute formidable barriers.capex even during the worst financial crisis. “Lack of certainty about what the Tata brand means.” writes Morgen Witzel in his latest book. “JLR has been reluctant to adopt the Tata brand for fear that it will dilute their own. Tata. Post a comment Email this article Mail This Article Print this article Save this article My saved articles Reduce font size Increase font size . fears over the consequences of foreign ownerships and in countries like Britain and the US.” Mr Witzel adds.” But the company still needs to address many issues including a meaningful integration of the Jaguar and LandRover brands into the Tata family.

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