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Case Study

Tata - JLR Deal
(Jaguar Land Rover Acquisition by Tata Motors)

Names and numbers have been changed / garbed wherever necessary to keep the real identities of the
corporate and brand confidential.

Page No.
Tata – Ford (JLR deal)
Why did TATA go for JLR?
Is deal really worth it?
Disadvantages by not going for this acquisition?
SWOT Analysis
Assignment Questions
Explain the problem faced by Ford Motors with
its luxury brand JLR?
What kind of strategic advantage Tata Motors
will get with the acquisition of JLR?
How Tata Motors decided to finance the
acquisition of JLR?
What went wrong in financing the deal? Explain
in detail.
Explain in brief the different instrument used in
financing the deal?


especially in the key US market. 1 . funding risks.Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 2. and also licenses of all necessary intellectual property rights.3 billion. but also started wiping out the JLR market. According to industry analysts. currency risks etc. some of the issues that could trouble Tata Motors were economic slowdown in European and American markets. Market conditions were extremely tough. announced that it had completed the acquisition of the two iconic British brands . There was a widespread skepticism in market over an Indian company owning the luxury brands.INTRODUCTION In June 2008. two advanced design centers in the UK. national sales companies spanning across the world. India-based Tata Motors Ltd. Tata’s needed to invest a lot in brand building to make JLR profitable. Forming a part of the purchase consideration were JLR's manufacturing plants. Onset of recession not only made investment look mistimed.

During the year. The company acquired Jaguar from British Leyland Limited in 1989 for US$ 2. After Ford acquired Jaguar. Tata Motors was interested in acquiring JLR as it will reduce the company’s dependence on the Indian market alone. as it had increased the earnings volatility. Volvo was acquired for US$ 6. Jaguar. Ford established the PAG with Aston Martin. Ford Motors felt that acquisition was not the right way of penetrating into the upscale segment. and Lincoln. it still recorded high sales.5 billion. The sales of Jaguar in many markets declined. as part of the restructuring exercise called the ‘Way Forward' plan decided to dismantle the PAG.US and Europe. 2 . Citigroup. adverse economic conditions worldwide in the 1990s led to tough market conditions and a decrease in the demand for luxury cars. but in some markets like Japan. In March 2007. In September 2006. Tata Group came under severe cash crunch because of the Corus deal and the huge investments in the TATA Nano project which itself was surrounded in a lot of uncertainties. President and CEO of Ford. In June 2007.TATA – Ford (JLR deal) Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation in the automobile industry. Germany. and Italy. and it also became a part of the PAG. given the difficult economic conditions in the key markets of JLR operated .000 crore) through bridge loans for 15 months from a consortium of bank. State Bank of India and financial institution. which accounted for 90% of its sales. In March 1999.45 billion. Tata Motors raised $3 billion (about Rs 12. After failing to rebrand and integrate these luxury brands with its product portfolio. Ford announced that it was considering selling JLR. The credit rating companies also took a negative outlook toward this deal because of the huge debt requirement to complete the deal.JP Morgan. Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors. Ford sold the Aston Martin sports car unit for US$ 931 million. Allan Mulally (Mulally).

and Anglo-Dutch Steel maker Corus (Refer to Exhibit I for the details of the group's international acquisitions). On acquiring JLR. 2) Tata also got two advance design studios and technology as part of the deal. for eg. 1) The acquisition would help the company acquire a global footprint and enter the high-end premier segment of the global automobile market. Tata Motors' long-term 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. keeping their identities intact. This would provide Tata Motors access to latest technology which would also allow Tata to improve their core products in India. We aim to support their growth.Why did TATA go for JLR? Tata Motors had several major international acquisitions to its credit. "We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business. 4) The cost competitive advantage was as Corus was the main supplier of automotive high grade steel to JLR and other automobile industry in US and Europe." Tata Motors stood to gain on several fronts from the deal. After the acquisition. South Korea-based Daewoo's commercial vehicle unit. Tata Group. and luxury marquees like the Jaguar and Land Rover. 3 . 3) This deal provided Tata an instant recognition and credibility across globe which would have otherwise have taken years. We have enormous respect for the two brands and will endeavor to preserve and build on their heritage and competitiveness. 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. Ratan Tata. Tata Motors would own the world's cheapest car the US$ 2. Indica and Safari suffered from internal noise and vibration problems.500 Nano. said. Chairman. International luxury hotels. It had acquired Tetley. 5) In the long run TATA Motors will surely diversify its present dependence on Indian markets (which contributed to 90% of TATA’s revenue). The whole cost synergy that can be created can be seen in the following diagram. This would have provided a synergy for TATA Group on a whole. Along with it due to TATA’s footprints in South East Asia will help JLR do diversify its geographic dependence from US (30% of volumes) and Western Europe (55% of volumes).

which had a global presence and a repertoire of well established brands.•Leader in the automative grade steel. Ford. TACO TATA Corus TCS INCAT •Provides engineering design. FIAT etc. Ford . 4 . Daimler. would help Tata Motors become one of the major players in the global automobile industry. •Customers include Chrysler. Analysts were of the view that the acquisition of JLR. •Customers inc. Ford. GM etc. •TAMO's flagship ancillary biz. GM etc. •Provides services like supplier programs. •Major customer include Chrysler. manufacturing solutions and sourcing services. •16% of revenue fron auto steel division. consulting services and global outsourcing.

the Chinese domestic car market has grown by 7%. its fortunes have been unsure. The Chinese and Indian domestic markets for cars have been exceptions. This was in addition to the US$ 2. 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 $3 billion loans it racked up for the Jaguar/Land Rover shopping bill. While China has witnessed a significant reduction in its automotive-related exports and supplies to automobile companies. Since then. coupled with the downturn in the global automobile industry. In January 2009. Tata Motors announced that due to lack of funds it may be forced to roll over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 5 . losing a record $517 million on $14.7 billion in revenues. All through the fiscal year ended March 2009 the company bled money. Moreover. The automobile industry the world over is rationalizing production facilities.Is deal really worth it? Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors. Jaguar and Land Rover lost an additional $510 million in the 10 months Tata owned it until March 2009. In India the passenger car market has remained more or less flat compared to the previous year. Tata Motors had also incurred huge capital expenditure on the development and launch of the small car Nano and on a joint venture with Fiat to manufacture some of the company’s vehicles in India and Thailand. as it had increased the earnings volatility.3 billion it had spent on the acquisition. just on its India operations. Worldwide car sales are down 5% as compared to the previous year. Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the previous year. given the difficult economic conditions in the key markets of JLR including the US and Europe. Tata Motors had to incur a huge capital expenditure as it planned to invest another US$ 1 billion in JLR. This. 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. consolidating brands and dropping model lines and deferring R&D projects to conserve funds. reducing costs wherever possible. was expected to impact the profitability of the company in the near future.

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. 6 .

7 .

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). 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. analysts’ community etc. TAMO would have lacked in robust designing capabilities. Tata would not have been able enter into the premium segment (>10 lakhs) in India. Ford purchased JLR at $5 bn and sold at almost half the price to TAMO after operating it for losses for few years. Above all.Disadvantages by not going for this acquisition? There was immense pressure from the shareholders. 8 . at that time no other major automobile brand was available for acquisition with such designing and R&D capabilities.

TACO and TCS • Experience in growing market like India • New product development and brand building experience • JLR would give TAMO an in-house R&D and designing capabilities • Better utilization of cash reserves available with TAMO • Reduce production cost of JLR by synergizing better with other TATA cos like Corus • Acquisitions like JLR will help TAMO in competing with brands like Merc. etc. Engine.SWOT Analysis Opportunities: • Rising appetite for luxury automobiles in growing markets like India and China • Established European brands available at affordable investment • Support from Jaguar in Technology. Accounting • Complete product line with addition of luxury brands • Access to European and American Market Threats • Volatility in market driven by new products • Strong presence of competitors like Mercedes. BMW. Lexus and Infinity • Receding sales and brand image • Downturn making Investment riskier and costlier • 90% of TAMO revenues comes from one market alone-India Strengths: • Tata’s strong management capability • Strong monetary base to invest • Synergy due to Corus. • Proven Management and brand building capabilities would facilitate faster JLR turnaround • Strong financial muscle will help TAMO to invest in R&D and produce new better products • Improve risk profile of TAMO with diversification in different markets Weaknesses: • Inexperience in Handling luxury automobile brand • Inexperience in turning around loss making company • R & D and designing capabilities • JLR experience and designing capability would help TAMO in improving their existing products in Indian markets. • JLR’s strong brand image will ease acceptance of TAMO in international markets • Keeping the existing management team of JLR make turning around easier • Leverage experience gained with Tetley and Corus in allaying market apprehensions about acquisition • Make Jaguar design center as their global design HQ • Use Jaguar channel to distribute TAMO brands without merging the brands 9 . IT.

e. Explain in brief the different instrument used in financing the deal? 10 . Explain the problem faced by Ford Motors with its luxury brand JLR? b. What went wrong in financing the deal? Explain in detail. answer the following question : a. What kind of strategic advantage Tata Motors will get with the acquisition of JLR? c. How Tata Motors decided to finance the acquisition of JLR? d.Assignment Question for group Based on the Case Study.

156 1.70.187 Western Europe 1.766 1. was boost up by the record sale of 226. on the other hand.131 22.450 17% From the table.774 73. reports said that losses at Jaguar stood at USD 715 million.809 55% America 83.” analysts said. Jaguar was not performing well as it was unable to provide any profit for Ford due to high manufacturing costs in United Kingdom.638 57.6billion in 2006 .the heaviest in its 103-year history The table below shows the number of sales of JLR after acquired by Ford: Numbers 2005 2006 2007 Jaguar 86.765 75.836 29% Rest of Word 7. 11 . sales from year to year fluctuated without certainty of growth.732 18% Total 2. Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar is so intertwined.219 25.000 vehicles. It was a test that Ford failed.74.903 35.807 2.303 95.634 53.578 Western Europe 46.399 Western Europe 97.60.092 1.024 57% America 32.092 28% Rest of world 35.731 9.718 13% Land Rover 1.136 16.620 2.56.928 28% Rest of word 28. an 18% year over year growth in 2007.940 2.785 54% America 51.080 43. we may see that the sales of Jaguar are decreasing dramatically from 2005 until 2007.09. After intertwined Jaguar and Land Rover. This is one of the reasons that lead Ford’s decision to sell JLR to Tata Motor. The wellbeing of Land Rover's profit.680 57. The US auto major put the two marquees on the market in 2007 after posting losses of $12.789 41.367 33.651 72. "Bringing down production costs and turning around the company successfully will be the challenge.36.Explain the problem faced by Ford Motors with its luxury brand JLR? In 2006.177 7.

we may observe that Ford failed to reduce production costs as major proportion of cost is material cost and they unable to bought cheaper materials from suppliers.The table below shows the cost of production for JLR: From the table. This however is very different if Tata Motor takes the ownership because they are utilizing country’s vast natural resources 12 .

7) Improved corporation’s image and increased its public reputation. prototype design & design & power train engineering. 5) Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portfolio internationally. Below are the reasons behind Tata Motors’s decision to acquire JLR: 1) Long term strategic commitment to automotive sector which Tata Motors want to become a major player in the international automobile market. 6) Benefits from component sourcing. Rover Business Three plants in UK Tata Motors will directly own these two well invested plants by Ford. 3) Increased business diversity across markets and products. development & 13 . 4) Land Rover provides a natural fit for Tata Motors’s Sport Utility Vehicle (SUV) segment which attracted Tata Motor. 2) Opportunity to participate in two fast growing auto segments to fulfill part of Tata Group’s ongoing strategy of internationalization. Two advanced 4000-5000 engineers engaged in testing.What kind of strategic advantage Tata Motors will get with the acquisition of JLR? After the acquisition of the British Jaguar Land Rover (JLR) business. Tata Motors had obtained numerous benefits and advantages. design services and low cost engineering by obtaining intellectual property rights related to the technologies. Tata Motors benefited: 100% stake in Tata Motors has acquired the business & initially they Jaguar & land will be operated independently of the partner. Subsequent to the acquisition of JLR.

Capital Allowance Capital allowance with a minimum guaranteed amount of US $1.1 billion to be carried forward for future tax savings. However. By acquiring JLR. Twenty six National Both existing national sales companies of JLR and sales company also those that are carved out of current Ford operation would be owned by Tata Motors. It is not wrong to possess such ambitious corporate mission and vision with aggressive strategies and strong support from the high working center integration. we believe that the main reason influence Tata Motor’s decision to acquire JLR is to go global by acquiring famous international brand to increase its global image. Support from Ford Ford Motor Credit will continue to support the sales Motor Credit of JLR for the next 12 months Pension Ford will contribute US$ 600 million of the Pension Contributed by Ford Fund to the workers in United Kingdom After analyzed the case study. Tata Motors able to obtain intellectual property rights related to the technologies from JLR at the meantime improve corporation’s image and increase its public reputation. there are always some 14 . Intellectual These covers all key technologies to be transferred to property rights JLR & perpetual royalty free license on technologies shared with Ford.

15 . The questions are sound like -.Have Tata Motors make enough pre-acquisition jobs such as risk measurement and macroeconomic study before acquisition of the British Jaguar Land Rover (JLR) business on a cash free and debt free basis? Are there any problems company could face in financing acquisition? Would Tata Motors face problems after the acquisition of JLR? We would discuss these in the further sections.questions being asked which form a doubt feeling among public.

• Tata Motors could comfortably finance the acquisition of Jaguar and Land Rover.000 crore during FY-2007.” said Wolfgang Bernhart. A number of management changes. Automotive Competence Center. TATA Capital and Investment.75 Billion was raised through a deposits scheme from the Public. Bernhart said. a long-term goal that runs until 2014 was drawn up. 16 . Roland Berger. First. before Tata Motors Ltd took over Jaguar Land Rover (JLR). contingencies and working capital.How Tata Motors decided to finance the acquisition of JLR? In the summer of 2007. Then came a mid-term target to contain costs at various levels and the formation of 10-11 cross-functional teams. • Rs. Finally. The Indian automaker was sitting on a cash of over Rs 6. a short-term goal to manage liquidity with the assistance of KPMG was put in place. were made. It could easily use these reserves to raise more funds without endangering its finances. Tata Motors Debt-to-Equity ratio was a low 0.7 billion was for engine and component supply. • Low leverage of the auto business provided funding flexibility • Additional amount of US $0. Ratan Tata and Ravi Kant embarked on a trip through the US. The key aims—cash management and checking costs. • It intended to refinance the loan through long-term funds valuable stakes in group companies  Owns $400m of Tata Steel at current prices  Owns stake in Tata Sons (Tata Group’s holding company) worth at least $600m Cash management “A three-tier model was developed. giving it ample room to raise more funds. • Rs. Their objective—to gauge whether the legendary British marques still evoked enough passion in the biggest market for the vehicles to justify the acquisition. partner.92 Billion underwriting agreement with J M financial Consultants.1. 1. including new heads at JLR.000 crore and generated free cash of over Rs 1. • Additional subscriptions by promoter companies such as TATA Sons.56. focusing on new models and refreshing the existing ones. • At the end of last financial year.

the workforce was trimmed by another 1. Since January. the company was astonished at how high the figure was.000 at JLR.When Roland Berger added up the money that could be saved.800 to 16. A team of young managers was put in charge. According to chief financial officer C.000. in an approach similar to the one followed in the 2003 restructuring at Tata Motors.6%.9% against the dollar and 7. the pound has strengthened 4. However. The rupee has strengthened against both currencies this year. In November 2008. which has paid off with the global economy reviving and customers returning to JLR showrooms. Crucially. the board approved a Rs 4.7% against the euro. All proceeds were channelled into Tata Motors to make JLR profitable. Tata Motors also embarked on a plan to divest stakes in group companies to raise cash: In September 2008. which was completed in June this year. In a 9 November earnings call with analysts. Ramakrishnan. with reviews on a daily basis.000 from a gargantuan workforce of 27.370 basis points or 13. 17 . it sold a 1. the extent of the turnaround can be gauged when margins are compared with corresponding quarter of previous year. Ramakrishnan said margins had benefited from favourable currency movements. About half the firm’s turnover is dollarlinked while one-fifth is linked to the euro.3% holding in Tata Steel Ltd to holding company Tata Sons Ltd for a total Rs 485 crore. Margins rose by a whopping 1.147 crore rights offer. over the first quarter of 2010-11.9% in 30 September 2009-10. Tata Motors was able to keep product development plans going. widening by one percentage point to 16. who spoke to analysts after announcement of the September quarter results.7% from 2. JLR’s turnaround has been aided by external factors. The programme also saw the workforce being trimmed since July 2008 by around 11. reflecting the changed dynamics of the company as sales rose sharply on the back of new product launches and improved market sentiments.

Subprime mortgage crisis has caused the demise of Lehman brothers which later lead to the collapse of the global financial sector and further deepened the global financial crisis. The bridge loan was due on June 2009 and yet at the end of the year 2008. the debt ratio had increased over the five years and they have negative interest coverage which these shows that the company was having problem in paying the bridge loan. unavailability of finance or higher cost of finance as well as gloomy economic conditions had slumped the demand badly. Besides. Tata Motors was finding it difficult to access credit and raise fund from the stock market due to the tight liquidity conditions. (Annual Report 2009) These factors have tremendously pressured both Tata Motors’ commercial and passenger vehicle industry which lead to sales declined. Followed by high inflation and high material cost which lead to higher vehicle prices and fuel prices.What went wrong in financing the deal? Explain in detail. lacking of working capital has caught them into trouble to repay the bridge loan of US$ 3 billion which used to finance the acquisition of Jaguar and Land Rover (JLR). Jaguar and Land Rover faced severe demand contraction due to the negative wealth effect.7% in year 2009. Problem 1: Lack of access to credit to repay the bridge loan of US$3 Billion Tata Motors was facing problem in cash liquidity and have negative working capital after the acquisition of JLR. Besides. the global line of credit is frozen which has cut the availability of financing for companies throughout the global economic crisis. Consequently. As the fuel price and interest rate increase plus the 18 . GDP growth slowed down substantially from 9 % in year 2008 to 6. the company was able to repay only US $ 1 billion. a gloomy and depressed stock market and lack of investors’ confidence. Problem 2: Global financial crisis has severely impacted the global automobile industry especially the luxury cars segment The automobile sector in India was severely impacted by the global financial crisis in the Indian and global business environment.

Therefore.continuing credit squeeze. So. High fuel price has caused Tata Motors to feel the heat of slowing demand. Decrease in sales volume and increase in cost as well as bearing the increment of short term debt would easily kill Tata Motors. tyres) price. 19 .6% during the year 2009. The industry performance in the domestic market during FY08-09 and the Company’s share is given below: Source: Society of Indian Automobile Manufacturers report and Company Analysis * including Magic and Winger sales # including Fiat branded cars The Company’s exports also declined by 38. consumers would buy low cost and low fuel consumption car rather than luxury and high fuel consumption car like JLR. due to the meltdown in major international markets and the consequent swings in foreign exchange rates.g. The graph below shows the dropped of sales which affected the net profit margin: Problem 3: Increasing materials and fuel prices have slow the demand of vehicles Due to the impact of tighter money supply with higher interest rate. the problem occurs as the JLR could not generate working capital to Tata Motors and the recessionary trends deepened the domestic vehicle sales.: steel. a probable solutions would keep them survive and grow. there will be meteoric rise in fuel and materials (e.

the earning per shares of the company dropped. Now. The dropped of shares price and EPS caused the investors and public losing confidence on Tata and later it had affected its global image. After the issuance of ordinary shares with right basis where existing shareholders could get one ordinary shares for every six shares held. This is due to the company earnings dropped (effects of the global economic crisis) and the number of shares outstanding increase. Problem 4: Share price dropped drastically and affect its global image As the debt market was frozen. everybody is in doubt whether Tata 20 . Tata Motors turn to the equity market to raise fund.Both graphs above show the steel and fuel price pattern from the years 2007 and 2000 until 2010.

This has eventually delayed the launching of Tata Nano in October and increase the cost of setting up factory and facilities to produce Nano.Motors able to survive and increase the EPS in the future and would think twice before investing in Tata Motors. Problem 5: Relocation of Nano’s factory from West Bengal to Gujerat The factory of producing Tata Nano was set up at West Bengal in order to launch the product on October 2008 but due to the violent political agitation in West Bengal over the land issue. Tata Motors was forced to relocate their prestigious Nano project to Gujarat. The share price of Tata Motors dropped drastically after the issues of ordinary shares on the right basis. 21 .

Long term strategic commitment to automotive sector.92bn ($2.22bn ($550mn) – ‘A’ Equity shares carrying differential voting rights upto Rs.400mn) (through issue of equity / equity linked instruments to refinance bridge loan • 3 simultaneous but unlinked Rights Issues of about Rs. Tata Motors had following strategic considerations: 1.Explain in brief the different instrument used in financing the deal? Behind acquisition of Jaguar Land Rover. Tata motors meticulously planned its refinancing strategy as follows: • TML raised a 15 month bridge loan of $3bn to finance the acquisition • TML also planned to raise about Rs. In the event of CCP conversions between 2011 and 2013.20bn ($500mn)  Optionally convertible into ‘A’ Equity Shares after 3 years but before 5 years from the date of allotment (upto $750mn)  Approx USD 500/600mn to be raised through issue of securities in the foreign markets Above equity issues were estimated to increase the then existing equity capital by about 30%-35% in FY09. Increased business diversity across markets and product segments. Sharing of best practises between Jaguar. 3.800mn) of the following securities (Price range to be determined in due course):  Equity shares upto Rs. additional increase of about 12% was also estimated 22 . low cost engineering and design services. 2. Long-term benefits from component sourcing.96bn ($2. 4. Unique opportunity to move into premium segment with access to world class iconic brands since: (a) Land Rover provides a natural fit above TML’s Utility Vehicles/SUV/Crossover offerings for the 4x4 premium category (b) Jaguar offers a range of “Performance/Luxury” vehicles to broaden the brand portfolio 5.72bn ($1.300mn) and • Rs. Land Rover and Tata Motors in the future 6. Opportunity to participate in two fast growing auto segments (premium and small cars) and to build a comprehensive product portfolio with a global footprint immediately.

1. • $ 1 billion aid package by British Government. (out of total $2. Tata capital and Tata Investment Ltd.3 billion) 23 .92 billion Underwriting agreement with JM financial consultants • Rs.1.Tata sons.The amount was repaid by using different instrument in financing the deal in following manner :• Rs.75 billion was raised through a deposit scheme from the public • Additional subscriptions by promoter companies.