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Submitted To: Prof. R. Sahu Submitted By: Jitesh Maharwal(2004IPG44) Nikhil Garg(2004IPG29) Sunny Tyagi(2004IPG71) Harendra Singh (2004IPG83)
Tata Motors: Acquisition of Jaguar &
Mercury. Volvo. Jaguar and Land Rover •CEO: Alan Mulally Henry Ford and his Model T . Toyota •Brand names: Lincoln. Mazda. Michigan •Founded: 1903 by Henry Ford •Competitors: General Motors.Ford Motors Company •Location: Dearborn.
Top Seven Auto and Truck Manufactures Organized by Market Capitalization As of April 22. 2008 .
Jaguar name first appeared in 1935 1975 .Jaguar: The ups and downs • • • • • • • • • 1922 .Floated off as a separate co in the stock market 1990 .Nationalized in due to financial difficulties 1984 .Taken over by Ford A statement of ultra luxury Holds Royal warrants Rarely advertised Ford’s formula one entry since 1990s .Founded in in Blackpool as Swallow Sidecar company 1960 .
The case of Land Rover • • • • • • • • 1948: Land Rover is designed by the Rover Car co 1976: One millionth Land Rover leaves the production line 1994: Rover Group is taken over by BMW 2000: Sold to Ford for £1.8 billion Known for superior off-road performance Used by military for projects and expeditions Safe but less reliable Makeover in recent times .
Announcement from Ford that it plans to sell Land Rover and Jaguar.Major bidders are identified Likely buyers • Tata Motors • M&M • Ceribrus capital Management • TPG Capital • Apollo Management . • August 2007 .The Deal Process • 12/06/2007.
Ford agreed to sell their Jaguar Land Rover operations to Tata Motors. • 02/06/2008 – The acquisition is .The Deal Process • India’s 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 .
Telco • Tata Motors’s break-even point for capacity utilization is one of the best in the industry worldwide • listed on the New York Stock Exchange in 2004 .TATA MOTORS – A SNAPSHOT • TATA GROUP – 150 YEAR OLD • Previously Tata Engineering and Locomotive Company.
Making Waves Internationally • NANO will mark the advent of India as a global centre for small-car production and represent a victory for those who advocate making cheap goods for potential customers at the 'bottom of the pyramid' in emerging markets. • International praise came from Standard & Poor’s. which in December 2006 expressed the view that the “policy to support its companies and the improved financial profile of its entities also .
Key issues • Ford acquired Jaguar for $2.6 billion in 2006 . • But the US auto major put the two marquees on the market in 2007 after posting losses of $12.75 billion in 2000.the heaviest in its 103-year history. • Ford acquired Land Rover for $2. .5 billion in 1989.
” analysts said. . was driven by the record sale of 2. will be the challenge.26 lakh vehicles. • Bringing down production costs and turning around the company successfully.. jaguar has been a dog i. • The strong boy Land Rover's profit. an 18% YoY growth in 2007. • Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar is so intertwined. It’s a test that Ford failed. on the other hand.e. it has not been able to provide any profit for ford because of the high manufacturing costs provided in the united kingdom.Why is Ford selling? • Reports said losses at Jaguar stood at USD 715 million in 2006.
• Land rover provides a natural fit for TML’s suv segment. • Increased business diversity across markets and products. • Opportunity to participate in two fast growing auto segments.design services and low cost engineering. • Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portfolio. • Benefits from component sourcing. .Is TATA catching a falling knife…or Why acquire JLR? • Long term strategic commitment to automotive sector.
in a bid to consolidate operations and emerge as the new age multinationals. Foreign vehicle makers including Daimler . is also facing heat from top car maker Maruti Suzuki India Ltd .Nissan Motor . Renault and Volkswagen • • • . it is the leader in commercial vehicles and the second largest in passenger vehicles. Australia and Africa . Tata Motors is India's largest automobile company. COMPETITIVE ADVANTAGE Tata Motors is vulnerable to greater competition at home. engines and transmissions in India.2 billion in 2006-07.some even several times larger . the United States. the Tata group has led the growing appetite among Indian companies to acquire businesses overseas in Europe. Hyundai Motor .Tata and the dream… • NEED FOR GROWTH In the past few years.Volvo and MAN AG have struck local alliances for a bigger presence. which has a joint venture with Fiat for cars. Tata Motors. with revenues of $7. With over 4 million Tata vehicles plying in India.
WHAT IS TATA PAYING FOR ???? .
Valuation of deal .
• Investors concerns on manpower costs misplaced • – Investors apprehensive that TAMO has agreed to continue with plants in UK • Purchasing basket offers bigger opportunity for cost reduction • – It is more important to manage the material & sourcing costs to improve margins – Material Cost is 4-6x the wage cost for high-end products such as Land Rover .Cost synergies • Material costs and not manpower key to better margins.
TATA group has a a rich ecosystem of JVs with leading players in Auto ancillary space held through TACO.Cost synergies • Tata Group has multiple levers • Tata Auto Comp (TACO) . Corus and Tata Technologies have varied competencies in the Auto space • We believe an improvement of 50-70bps in EBITDA margin possible in JLR over the next 2 years (current EBITDA margin) • We estimate CY2007 EBITDA margin of JLR at around 6. • TCS.5% – This could make the acquisition PAT accretive in CY2009/FY10E .
Revenue synergies .A long-term possibility • Revenue synergies limited in the medium term (2-3 years) • In the long-run Tata Group and Tata Motors’ footprint in South-East Asia should help Jaguar/Land Rover diversify their geographic dependence from US (30% of volumes) and Western Europe (55% of volumes) .
5x for global peers . leverage would go to 1.5x against 8.4x for global peers • P/E (1-yr forward) of 6.TAMO + JLR: Leverage and Valuation ratios q Leverage increases but coverage ratios reasonable • Headline Debt/Equity of TAMO would increase to 2.2x • EBITDA/Interest remains at 5.5x from 1x • Excluding the vehicle finance biz.5x against 0.0 q TAMO is trading inline/modest discount to global peers • EV/Sales (1-yr forward) of 0.
TAMO + JLR: Proforma P&L .
TAMO + JLR: Proforma Balance Sheet (CY2008/FY2009E) .
TAMO + JLR: Proforma Cashflow(CY2008/FY2009E) .