Case Study

Strategic Management
10th August 2010

Submitted to:

Submitted by:

Dr. S. Bajaj

Ashutosha Kumar Jha -91011

FORE School of Management

Mohd. Faraz Khan - 91033

Nishant Singh - 91039
Roshan Sonthalia - 91045

INTRODUCTION
In June 2008, India-based Tata Motors Ltd. announced that it had completed the acquisition
of the two iconic British brands - Jaguar and Land Rover (JLR) from the US-based Ford
Motors for US$ 2.3 billion. Forming a part of the purchase consideration were JLR's
manufacturing plants, two advanced design centers in the UK, national sales companies
spanning across the world, and also licenses of all necessary intellectual property rights.
There was widespread skepticism in market over an Indian company owning the luxury
brands. According to industry analysts, some of the issues that could trouble Tata Motors
were economic slowdown in European and American markets, funding risks, currency risks
etc. Market conditions were extremely tough, especially in the key US market. Tatas needed
to invest a lot in brand building to make JLR profitable. Onset of recession not only made
investment look mistimed, but also started wiping out the JLR market.

TATA - JLR deal

Tata had completed this biggest buy-out in the automobile space by an Indian company on
June 2, 2008 as it bought the ownership of luxury brands - Jaguar and Land Rover. The deal
included the purchase of JLR's manufacturing plants, two advanced design centers in the UK,
national sales companies spanning across the world and also licenses of all necessary
intellectual property rights.
Tata Motors was interested in acquiring JLR as it will reduce the companys dependence on
the Indian market, which accounted for 90% of its sales. Morgan Stanley reported that JLRs
acquisition appeared negative for Tata Motors, as it had increased the earnings volatility,
given the difficult economic conditions in the key markets of JLR including the US and
Europe.
Tata Motors raised $3 billion (about Rs 12,000 crore) through bridge loans for 15 months
from a clutch of banks, including JP Morgan, Citigroup, and State Bank of India. Tata came
under cash crisis because of the Corus deal and the huge investments in the TATA Nano
project which itself was surrounded in a lot of uncertainties. The credit rating companies also
took a negative outlook toward this deal because of the huge debt requirement to complete
the deal.
Ford Motors Company (Ford) is a leading automaker and the third largest multinational
corporation in the automobile industry. The company acquired Jaguar from British Leyland
Limited in 1989 for US$ 2.5 billion. After Ford acquired Jaguar, adverse economic conditions
worldwide in the 1990s led to tough market conditions and a decrease in the demand for
luxury cars. The sales of Jaguar in many markets declined, but in some markets like Japan,

Germany, and Italy, it still recorded high sales. In March 1999, Ford established the PAG with
Aston Martin, Jaguar, and Lincoln. During the year, Volvo was acquired for US$ 6.45 billion,
and it also became a part of the PAG.
In September 2006, Allan Mulally (Mulally), President and CEO of Ford, as part of the
restructuring exercise called the Way Forward' plan decided to dismantle the PAG. In March
2007, Ford sold the Aston Martin sports car unit for US$ 931 million. In June 2007, Ford
announced that it was considering selling JLR. After failing to re-brand and integrate these
luxury brands with its product portfolio, Ford Motors felt that acquisition was not the right
way of penetrating into the upscale segment.

Why did TATA go for JLR?

Tata Motors had several major international acquisitions to its credit. It had acquired Tetley,
South Korea-based Daewoo's commercial vehicle unit, and Anglo-Dutch Steel maker Corus
(Refer to Exhibit I for the details of the group's international acquisitions). Tata Motors' longterm strategy included consolidating its position in the domestic Indian market and expanding
its international footprint by leveraging on in-house capabilities and products and also
through acquisitions and strategic collaborations.
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 the management and employees to bring their
experience and expertise to bear on the growth of the business."
Tata Motors stood to gain on several fronts from the deal. One, the acquisition would help the
company acquire a global footprint and enter the high-end premier segment of the global
automobile market. After the acquisition, Tata Motors would own the world's cheapest car the US$ 2,500 Nano, and luxury marquees like the Jaguar and Land Rover.
Two, Tata also got two advance design studios and technology as part of the deal. This would
provide Tata Motors access to latest technology which would also allow Tata to improve their
core products in India, for eg, Indica and Safari suffered from internal noise and vibration
problems.
Three, this deal provided Tata an instant recognition and credibility across globe which would
otherwise would have taken years.
Four, the cost competitive advantage as Corus was the main supplier of automotive high
grade steel to JLR and other automobile industry in US and Europe. This would have
provided a synergy for TATA Group on a whole. The whole cost synergy that can be created

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Five, in the long run TATA Motors will surely diversify its present dependence on Indian
markets (which contributed to 90% of TATAs revenue). Along with it due to TATAs
footprints in South East Asia will help JLR do diversify its geographic dependence from US
(30% of volumes) and Western Europe (55% of volumes).
Analysts were of the view that the acquisition of JLR, which had a global presence and a
repertoire of well established brands, would help Tata Motors become one of the major
players in the global automobile industry.

Is deal really worth it?

Morgan Stanley reported that JLRs acquisition appeared negative for Tata Motors, as it had
increased the earnings volatility, given the difficult economic conditions in the key markets of
JLR including the US and Europe. Moreover, Tata Motors had to incur a huge capital
expenditure as it planned to invest another US$ 1 billion in JLR. This was in addition to the
US$ 2.3 billion it had spent on the acquisition. Tata Motors had also incurred huge capital
expenditure on the development and launch of the small car Nano and on a joint venture with
Fiat to manufacture some of the companys vehicles in India and Thailand. This, coupled
with the downturn in the global automobile industry, was expected to impact the profitability
of the company in the near future.

Worldwide car sales are down 5% as compared to the previous year. The automobile industry
the world over is rationalizing production facilities, reducing costs wherever possible,
consolidating brands and dropping model lines and deferring R&D projects to conserve
funds.
The Chinese and Indian domestic markets for cars have been exceptions. While China has
witnessed a significant reduction in its automotive-related exports and supplies to automobile
companies, the Chinese domestic car market has grown by 7%. In India the passenger car
market has remained more or less flat compared to the previous year.
Since then, its fortunes have been unsure, as the slump in demand for automobiles has
depressed its revenues at the same time Tata has invested nearly $400 million in the Nano
launch and struggled to pay off the expensive $3 billion loans it racked up for the
Jaguar/Land Rover shopping bill. Within the space of a year, Tata Motors has gone from
being a developing-world success story to a cautionary tale of bad timing and overly
ambitious expansion plans.
Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the
previous year.All through the fiscal year ended March 2009 the company bled money, losing
a record $517 million on $14.7 billion in revenues, just on its India operations. Jaguar and
Land Rover lost an additional $510 million in the 10 months Tata owned it until March 2009.
In January 2009, Tata Motors announced that due to lack of funds it may be forced to roll
over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 billion. The
financial burden on Tata Motors was expected to increase further with the pension liability of
JLR coming up for evaluation in April 2009.

Disadvantages by not going for this acquisition?

There was immense pressure from the shareholders, analysts community etc. to abort the
deal as they unanimously agreed that it was over priced and the balance sheet of TATA was
not in a position to absorb more loan (as discussed in the previous section). Ford purchased
JLR at $5 bn and sold at almost half the price to TATA after operating it for losses for few
years. As the market would have recovered from recession the valuation would have
increased since there would have been growth in the demand of JLR thus creating more
problems for TAMO. Tata would not have been able enter into the premium segment (>10
lakhs) in India. TAMO would have lacked in robust designing capabilities. Above all, at that
time no other major automobile brand was available for acquisition with such designing and
R&D capabilities.

TOWS Matrix

Opportunities:

Rising appetite for luxury

Threats

automobiles in growing markets

like India and China

Strong presence of competitors

available at affordable

Infinity

Support from Jaguar in

Accounting
Complete product line with
addition of luxury brands

like Mercedes, BMW, Lexus and

Technology, Engine, IT,

new products

Established European brands

investment

Volatility in market driven by

Receding sales and brand

image

Downturn making Investment

riskier and costlier

90% of TAMO revenues comes

from one market alone-India

Access to European and

American Market

Strengths:

Acquisitions like JLR will help

house R&D and designing

TAMO in competing with

capability

capabilities

brands like Merc. etc.

Strong monetary base to

Synergy due to Corus,

TACO and TCS

Tatas strong management

invest

JLR would give TAMO an in-

Experience in growing
market like India

Better utilization of cash

reserves available with TAMO

building capabilities would

facilitate faster JLR

Reduce production cost of JLR by

turnaround

synergizing better with other

TATA cos like Corus

Proven Management and brand

Strong financial muscle will

help TAMO to invest in R&D
and produce new better

New product development

products

and brand building

experience

Improve risk profile of TAMO

with diversification in different
markets

Weaknesses:

Leverage experience gained

Inexperience in Handling

capability would help TAMO in

with Tetley and Corus in

luxury automobile brand

improving their existing products

allaying market apprehensions

in Indian markets.

about acquisition

Inexperience in turning
around loss making

company

JLR experience and designing

ease acceptance of TAMO in

international markets

R & D and designing

capabilities

JLRs strong brand image will

Make Jaguar design center as

their global design HQ

Use Jaguar channel to

Keeping the existing

distribute TAMO brands

management team of JLR make

without merging the brands

turning around easier

Questions

Will Jaguar and Land Rover drive Tata Motors off bumpy roads?
Was TATA JLR deal a case of wrong timing/ price or wrong strategy or both or none?

Understand the role of acquisition as a growth strategy.

Examine Tata Motors' inorganic growth strategy.

Examine the rationale behind Tata Motors' acquisition of Jaguar and Land Rover.

Understand the advantages and disadvantages of cross-border acquisitions.

Understand the need for growth through acquisitions in foreign countries