CASE STUDY: Tata Motors Acquisition of Jaguar

and Land Rover in 2008

 Introduction
India-based Tata Motors Ltd. successfully acquired two British automotive brands
– Jaguar and Land Rover (JLR), in June 2008 from Ford Motors for $ 2.3B. As part of
the deal, Tata Motors gained 100% stake in companies, 3 UK plants, 2 advanced design
and engineering centers, 26 national sales companies, IP rights, $1.1B in capital
allowances for taxes, and $600M in pension contributions.
In order to facilitate the deal, Tata Motors raised $3B through bridge loans
through a number of banks, including JP Morgan, Citigroup and State Bank of India.
Although analysts were skeptical about the deal mainly due to the economic slowdown in
the major selling markets, Europe and North America, Tata Motors had accumulated
immense cash reserves (D/E ratio of 0.56) to raise the required funds without
endangering its own finances.
Ford Motor Company is the third largest automobile producer worldwide and ten
times the size of Tata Motors. The company is known for low-priced automobile with
standard interchangeable parts, virtual manufacturing, safety focused and low fuel
consumption. It acquired JLR into its new group PAG, which comprised of other brands
including Aston Martin, Volvo and Lincoln. In September 2006, Allan Mulally cleared
the sale of brands within PAG as part of restructuring exercise called “Way Forward” in
order to become more competitive. The decision highlighted the fact that Ford had not
accomplished its goal of penetrating into luxury brands. Enclosed in the appendix is the
timeline of major highlights for JLR and the deal process followed by Tata Motors.

Assess the pros and cons of Tata Motors’ acquisition of Jaguar and Land Rover. How
does the acquisition compare to other options the company could have pursued in
terms of growth?
Tata Motors main interest for the acquisition was not only to leverage past
synergies and M&A knowledge, but also more importantly, establish a global presence
within the automotive sector and remove its dependency on the Indian market, which was
facing greater competition from other foreign brands. The shareholder’s had a different
perspective as they felt it was over priced and not confident that Tata’s balance sheet
could handle this new debt. However, considering that the automotive market would
eventually recover, and that it paid Ford slightly more than half of what it paid for the
two brands, I believe that Tata Motors made a wise acquisition.
 Several pros can be identified:
a. Reduce its dependence on the Indian market, which contributed to 90% of Tata’s
revenue. Additionally, it indicated its long-term strategic commitment to the global
automotive sector.
b. Establish a global footprint, and enter the high-end premier market segment. JLR
would broaden the current brand portfolio.
c. Improved business diversification for JLR products across newer markets (SE Asia),
and removing its traditionally dependency on US and European markets.
d. The two advanced design technology centers provide access to advanced technology
and facilitate growth of Tata Motors’ SUV market segment in India.
e. The synergistic presence of Corus Steel, which would provide a supplier cost
competitive advantage. Corus Steel is the main supplier of high-grade steel to the
automobile industry.
Several cons can be identified:
a. Increase in debt ratio from 1X to 2.5X, especially given that it had immense capital
expenditure due to the launch of Nano.
b. Downturn in the economy and higher gas prices resulted in a 5% decrease in
worldwide automotive market, and in particular, SUV and luxury brands were the
hardest hit.
c. Loan payment of $3 B for the acquisition, and subsequent rollover of this loan. An
additional loss of $510 M of JLR during the 1st ten months of the acquisition.
d. Strong presence of competitors like Mercedes, BMW, Lexus and Infinity, all of who
have an established presence within this market space.

Will Tata Motors be able to achieve its desired results for purchasing Jaguar and Land
Rover?
This acquisition highlights the underlying need for Tata Group’s global growth.
Enclosed below is the Strengths and Weakness section of the SWOT analysis, which is
used to determine whether the goals are achievable.
STRENGTHS WEAKNESS
- A strong reputation for successful acquisition - Inexperienced in luxury automobile branding.
and integration of other automotive companies. - Inexperienced in turning loss-making ventures;
(Daewoo) prior to the acquisition (except NELCO), Tata
- Experienced management capability and human Group had acquired already successful brands.
resource capacity. - Lack of global R&D and design capability,
 - Strong balance sheets, due to diversified non- compared to its competitors.
automotive product portfolio.
- Established synergy of Corus, TACO and TCS.
- Developing and creating brand value and
experienced new product development and
deployment process.

What steps could it take to add value to the acquisition?

On acquiring JLR, Ratan Tata, Chairman, Tata Group, said, “We are very pleased
at the prospect of Jaguar and Land Rover being a significant part of our automotive
business. We have enormous respect for the two brands and will endeavor to preserve
and build on their heritage and competitiveness, keeping their identities intact. We aim to
support their growth, while holding true to our principles of allowing management and
employees to bring their experience to bear on growth of the business.”
Enclosed below is the Opportunities section of the SWOT analysis, which is
used to determine whether the goals are achievable.
OPPORTUNITIES
- Improving capabilities of existing products by leveraging JLR’s experienced design capability.
- Maintaining the JLR’s current management team in order to facilitate the turn around as indicated by
Ratan Tata.
- Making JLR design and technology centers as Tata’s global design HQ.
- Using existing JLR distribution channels to foster promoting of existing brands into the global market
space.
- Leveraging JLR’s brand image to gage acceptance of Tata as a global brand.
- Reduce risk profile with diversification and entry into different markets.
- Reduce production costs of JLR, by introducing/utilizing Indian facilities for production.

Assess the merits of the approach Tata Motors planned to take with acquisition. What
challenges might it have to overcome?
Enclosed below is the Threats section of the SWOT analysis, which is used to
determine whether the goals are achievable.
THREATS
- Presence of well established competitors, who have already capacitized this market with their global
brands.
- JLR’s receding sales and brand image, and volatility for new automotive entry products.
- Economic downturn, resulting in decreased sales for the identified market segment.
- Ability of successful introduction into other SE Asia markets.

Considering the SWOT analysis, Tata motors approach to pre- and post
acquisition is sound. Having already established a global presence with other products
(Tetley and Corus) and successful integration with the holding company, it is now only
an exercise of realizing the threats and carefully defining a scope and plan to mitigate.
Given that the threats are more to do with the automotive industry, rather than core
competencies, I foresee a successful integration of the JLR brand with Tata Motors, albeit
a longer road than first anticipated.

Conclusion (Progress Report)

Land Rover has received a grant offer of Euro 27M to build small Range Rovers
in the UK. Additionally, JLR has introduced new models (mid-size XF, revised Range
Rovers and XJ Saloon), which are stylish, and being heavily marketed in the US.
Although, these models were first conceived during Ford’s reign, the media blitz by Tata
Motors has gathered much anticipation. Secondly, Tata Motors plans to put a “Made in
India” tag on its freshly designed JLR models to be assembled in India. The assembly is
to take place at the company’s Pimpri facility and to be rolled-out by July 2011.
Additionally, JLR has 3 showrooms in India, which are targeted to attract the rising
affluent class in India.
Ratan Tata is creating a glorious vision for the global automotive market. Having
accomplished a brand and presence in both the cheapest and luxury brand categories,
indicates that Tata Motors has considered the whole spectrum and has now become an
indomitable force to reckon with.

References
1. http://seekingalpha.com/article/216121-progress-report-tata-motors-and-jlr
2. http://www.docstoc.com/docs/22877996/TATA-PROJECT-AND-CORPORATE-
PPT
3. http://machinist.in/index.php?option=com_content&task=view&id=2265&Itemid=2
4. http://trak.in/tags/business/2010/07/01/land-rover-made-in-india/
5. http://www.businessweek.com/globalbiz/content/aug2009/gb20090811_307608_page
_2.htm
APPENDIX
Key Timeline - Jaguar
1922 - Founded in Blackpool as Swallow Sidecar company
1960 - Jaguar name first appeared in 1935
1975 - Nationalized in due to financial difficulties
1984 - Floated off as a separate co in the stock market
1990 – Acquired by Ford for $2.5B in 1989
A statement of ultra luxury, Holds Royal warrants, rarely advertised, Ford’s formula one
entry since 1990s

Key Timeline - Land Rover

1948: Land Rover is designed by the Rover Car Company
1976: One-millionth Land Rover leaves the production line
1994: Rover Group is taken over by BMW
2000: Acquired by Ford for $2.75B

Acquisition Timeline/Deal Process – Tata Motors

12/06/2007 – Announcement from Ford to sell JLR
a. Likely Buyers identified as: Tata Motors, M&M, Ceribus Capital
Management, TPG Capital, Apollo Management.
b. Top Bidders: Tata Motors ($2.05B) and M&M ($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.
02/06/2008 – The acquisition is complete