Mergers & Acquisition

Submitted To: Prof. R. Sahu

Submitted By:
Jitesh Maharwal(2004IPG44)
Nikhil Garg(2004IPG29)
Sunny Tyagi(2004IPG71)
Harendra Singh (2004IPG83)
Tata Motors: Acquisition
of Jaguar &
 Ford Motors Company
•Location: Dearborn,
Michigan
•Founded: 1903 by Henry
Ford
•Competitors: General
Motors, Toyota
•Brand names: Lincoln,
Mercury, Volvo, Mazda,
Jaguar and Land Rover
•CEO: Alan Mulally Henry Ford and his Model
T
 Top Seven Auto and Truck
Manufactures Organized by Market
Capitalization
As of April 22, 2008
 Jaguar: The ups and downs
• 1922 - Founded in 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 - Taken over by Ford
• A statement of ultra luxury
• Holds Royal warrants
• Rarely advertised
• Ford’s formula one entry since 1990s
 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
 The Deal Process
• 12/06/2007- Announcement from Ford that it plans to sell
Land Rover and Jaguar.
• August 2007 - Major bidders are identified

Likely buyers
• Tata Motors
• M&M
• Ceribrus capital Management
• TPG Capital
• Apollo Management
 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 - Ford agreed to sell their
Jaguar Land Rover operations to Tata
Motors.
• 02/06/2008 – The acquisition is
 TATA MOTORS – A SNAPSHOT
• TATA GROUP – 150 YEAR OLD
• Previously Tata Engineering and Locomotive
Company, 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
 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 $2.5 billion
in 1989.
• Ford acquired Land Rover for $2.75
billion in 2000.
• But the US auto major put the two
marquees on the market in 2007
after posting losses of $12.6 billion in
2006 - the heaviest in its 103-year
history.
 Why is 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, will be the challenge,” analysts said.
It’s 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 acquire JLR?
Is TATA catching a falling knife…or

• 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 TML’s 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.
 Tata and the dream…
NEED FOR GROWTH
• In the past few years, the Tata group has led the growing appetite
among Indian companies to acquire businesses overseas in
Europe, the United States, Australia and Africa - some even
several times larger - in a bid to consolidate operations and
emerge as the new age multinationals.
• Tata Motors is India's largest automobile company, with revenues
of $7.2 billion in 2006-07. With over 4 million Tata vehicles plying
in India, it is the leader in commercial vehicles and the second
largest in passenger vehicles.
COMPETITIVE ADVANTAGE
• Tata Motors is vulnerable to greater competition at home. Foreign
vehicle makers including Daimler ,Nissan Motor ,Volvo and MAN
AG have struck local alliances for a bigger presence.
• Tata Motors, which has a joint venture with Fiat for cars, engines
and transmissions in India, is also facing heat from top car maker
Maruti Suzuki India Ltd , Hyundai Motor , Renault and Volkswagen
WHAT IS TATA PAYING
FOR ????
Valuation of deal
 Cost synergies

• Material costs and not manpower key to better margins.

• 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
• Tata Group has multiple levers
• Tata Auto Comp (TACO) - TATA group has a a rich ecosystem
of JVs with leading players in Auto ancillary space held
through TACO.
• TCS, 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 6.5%
– 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)
 TAMO + JLR: Leverage and Valuation ratios

q Leverage increases but coverage ratios reasonable

• Headline Debt/Equity of TAMO would increase to 2.5x
from 1x
• Excluding the vehicle finance biz, leverage would go to
1.2x
• EBITDA/Interest remains at 5.0
q TAMO is trading inline/modest discount to global
peers
• EV/Sales (1-yr forward) of 0.5x against 0.4x for global
peers
• P/E (1-yr forward) of 6.5x against 8.5x for global peers
 
TAMO + JLR: Proforma P&L
TAMO + JLR: Proforma Balance Sheet (CY2008/FY2009E)
TAMO + JLR: Proforma Cashflow(CY2008/FY2009E)