In June 2008 Tata Motors announced the completion of its acquisition of Jaguar Land Rover (JLR).

The worldwide recession and low consumer spends which followed soon after in the end of 2008 had
a major impact on this deal as well. Tata Motors which had been performing well consistently had to
show considerable losses because of JLR''s entry into its stable. Analysts had earlier predicted that
Tata Motors may face a difficult time in the coming years in turning around the two premium brands at
a time, when there was a drop in car sales and consumer spending. The company also faced criticism
on having over paid for the two brands and on the acceptability of Indian ownership. The Tata
Group is a large multinational conglomerate based in India, with many subsidiary and joint
venture companies.
Tata Sons Limited is the holding company of the Tata Group, and holds the bulk of shareholding in
these companies. Tata Sons Ltd is the owner of the Tata name and the Tata trademarks, which are
registered in India and several other countries.
About 86% of the equity capital of Tata Sons is held by philanthropic trusts endowed by members of
the Tata family. The biggest two of these trusts are the Sir Dorabji Tata Trust and Sir Ratan Tata
Trust. Tata business support service also part of Tata group.

IMPACT OF MERGERS AND ACQUISITIONS ON THE FINANCIALS AND

PERFORMANCE OF TATA GROUP

In the current globalised economy, mergers and acquisitions are being progressively
more used the world over, for increasing competitiveness of companies through
gaining better market share, expansion of the portfolio to reduce business risk, to
capitalize on the economies of scale and for entering new geographies, etc. This
research study was intended to analyze the consequence of going global market
through merger and acquisition and traders long and short term earnings .Thereby
study the impact of mergers on the financials by examining some pre- merger and
post-merger financial ratios, with the sample of firms chosen as three major
mergers/acquisitions of TATA Group. The results put forward that there are small
variations in terms of post merger financial performance of the joint firm is not
considerably different from the aggregate performance of the acquirer and target
companies before the merger.

Many in corporate India would be jealous of the Tata Group’s strategy around
mergers and acquisition. In the past 8 years, the Tata Group had made 35 overseas
acquisitions, including coal and iron ore mines, adding up Rs 78,000 crore, mostly in
the past 3 years.

ANALYSIS OF DATA

TATA GROUP OF COMPANIES

One of the India’s largest business groups in the country. It has about 96
operating companies. Diverse business in 7 sectors. Revenues equivalent to
5.3% of India’s GDP. Group revenue FY 2008: Rs 251,543 Cr. / $ 62.5 b.
Group profit FY 2008: Rs 21,578 Cr. / $ 5.4 b .Its 27 publicly listed companies
have a combined market capitalization which is the 2nd highest among all
business houses in India. Largest employer in private sector over 300,000
employees. A shareholder base of over 2.9 million. Operations in over 80
countries. Products and services exported to 85 countries

Tata is a rapidly growing business group based in India with significant

international operations. Revenues in 2007-08 are estimated at $62.5 billion
(around Rs251, 543 crore), of which 61 per cent is from business outside India.
The group employs around 350,000 people worldwide. The Tata name has been
respected in India for 140 years for its adherence to strong values and business
ethics.

The business operations of the Tata group currently encompass seven business
sectors: communications and information technology, engineering, materials,
services, energy, consumer products and chemicals.

The group’s major companies are beginning to be counted globally.

Considering two of the largest mergers of TATA Group

-Tata Steel became the sixth largest steel maker in the world after it acquired
Corus.

-Tata Communications is a leading global provider of a new world of

communications. With a leadership position in emerging markets, Tata
Communications leverages its advanced solutions capabilities and domain
expertise across its global and pan-India network to deliver managed solutions
to multi-national enterprises, service providers and Indian consumers.

TATA STEEL-CORUS

About the acquisition

Date: – 30th March 2007

Acquirer: – Tata Steel Limited

Target company: – Corus Plc.

Stake: – 100 %

Deal amount: – US$ 12201 m

Sector: – Steel sector

MERGER

On January 31, 2007, India based Tata Steel Limited (Tata Steel) acquired the Anglo
Dutch steel company, Corus Group Plc (Corus) for US$ 12.20 billion. The merged
entity, Tata-Corus, employed 84,000 people across 45 countries in the world. It had
the capacity to produce 27 million tons of steel per annum, making it the fifth largest
steel producer in the world as of early 2007.

Before the acquisition, the major market for Tata Steel was India. The Indian market
accounted for sixty nine percent of the company’s total sales. Almost half of Corus’
production of steel was sold in Europe (excluding UK). The UK consumed twenty nine
percent of its production.

After the acquisition, the European market (including UK) would consume 59 percent
of the merged entity’s total production.

DEAL : An auction was initiated on January 31, 2007, and after nine rounds of
bidding, TATA Steel could finally clinch the deal with its final bid 608 pence per share,
almost 34% higher than the first bid of 455 pence per share of Corus.

Synergies

There were many likely synergies between Tata Steel, the lowest-cost producer of
steel in the world, and Corus, a large player with a significant presence in value-
added steel segment and a strong distribution network in Europe. Among the
benefits to Tata Steel was the fact that it would be able to supply semi-finished steel
to Corus for finishing at its plants, which were located closer to the high-value
markets…

The Pitfalls

Though the potential benefits of the Corus deal were widely appreciated, some
analysts had doubts about the outcome and effects on Tata Steel’s performance.
They pointed out that Corus’ EBITDA (earnings before interest, tax, depreciation and
amortization) at 8 percent was much lower than that of Tata Steel which was at 30
percent in the financial year 2006-07
COMPANY’S RETURN BEFORE AND AFTER
ACQUISITION
PRE-ACQUISITION

POST-ACQUISITION

FINDINGS
As we can see from the line chart that the %cumulative abnormal return before
acquisition was sharply decreasing since past month with not even a single glimpse
of positive return on any single day.

But as soon as the acquisition took place, the earnings showed a marginal rise and
again got back to the level where it was just before the acquisition. This happened
due to very large debt generated due to overpaying by acquiring the Corus at a very
high price of 608 pence per share as compared to previously valued 455 pence per
share.

INTERPRETATION
Debt equity ratio on post acquisition increase because Corus debt was high it was
GBP1.6b to buy Corus and so its debt is almost 116% more than in pre acquisition.
ROCE shows that post acquisition is very less as compared to pre acquisition it has
negative percentage because company has short term returns after one year it will
improve in the long run. Net profit margin has very less change as profit is not much
affected. P/E increases in post acquisition by 30.2% which show high future cash flow.
ROE is decreasing by 37.7 which show that it has more debt than equity. EPS has a
very minor change. Operating profit margin is reduced by 9.1% which shows that it
has low profit.

TATA COMMUNICATION-NTT DOCOMO

About the acquisition

Date: – 13th November 2008

Acquirer: – Ntt-Docomo
Target company: – Tata Teleservices Ltd.

Stake: – 26 %

Deal amount: – US$ 2700 m

Sector: – Tele-communication

MERGER
Tata Teleservices has sold a stake of 26% to Japan’s NTT DoCoMo. The deal value is
$2.7 bn. Tata Tele has 30 million CDMA subscribers and is rolling out its GSM
services. Some say the deal is over-valued and some say its not easy to put value on
the fastest growing mobile market in the world. India is the fastest growing market
second only to China. It adds 10mn subscribers every month. The current subscriber
base stands at 300+million and is expected to be 700 million in 2012. That is almost
double to today’s numbers.

The Road ahead

Great deal it may be, but it has its risks. One reason is that telecom deals have been
controversial in recent times. This goes back to late last year when the government
sold pan-India licenses for $333 million apiece, amid a welter of controversy.

DoCoMo, in accordance with regulations of the Securities and Exchange Board of

India, expects to make an open offer to acquire up to 20 per cent of outstanding
equity shares of Tata Teleservices Maharashtra (TTML), a Tata telecommunication
company, through a joint tender offer along with Tata Sons. TTSL and TTML through
the Tata Indicom brand, have increased their combined share of the fast-growing
Indian mobile market and their combined subscriber base now stands at over 30
million.

TTSL expects to leverage DoCoMo’s expertise in the development and delivery of

value-added services, where DoCoMo is a firmly established market leader.

FINDINGS
Debt equity ratio on post acquisition debt is increasing which shows company debt is
increasing after merger. ROCE is constant it has not change much.Net profit margin
increases by 11.10 as it income increases in post acquisition as compared to pre
acquisition. P/E highly increases in post acquisition from 0 to 12%. ROE is decreasing
by 1.53% which shows that it slightly more debt than equity. EPS is increasing
drastically by 24.27% which is very profitable for investors. Operating profit margin is
increased by 15.43% which shows that company profit margin is very fairly profitable.

COMPANY’S RETURN BEFORE AND AFTER

ACQUISITION
PRE-ACQUISITION

POST-ACQUISITION

INTERPRETATION
The return of the target company Tata Communication has been very poor since the
past 15 to 20 days before the acquisition but it almost got to break-even soon after
the acquisition date. This sustained for the next 8 to 10 days but again got back into
negative returns zone due to poor customer support to the newly entered Docomo
brand in highly competitive communications market in India.

TATA MOTOR – JLR

About the acquisition

Date: – 27th March 2008

Acquirer: – Tata Motors Ltd

Target company: – Jaguar Land Rover

Stake: – 100 %

Deal amount: – US$ 2300m

Sector: – Automotive

Detailed Case Study

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. 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. Though there was
initial skepticism over an Indian company owning the luxury brands, ownership was
not considered a major issue at all.

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.

The Challenges

Morgan Stanley reported that JLR’s 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 company’s
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

CURRENT SCENARIO

In less than three years after its acquisition, Jaguar Land Rover has metamorphosed
from a millstone around Tata Motors’ neck into its crowning jewel. In the June 2010
quarter, JLR division accounted for nearly 70% of the company’s net profit and over
60% of its revenues on the consolidated basis. This was more than what the market
has expected and the stock is up by nearly 150% in the past two trading sessions.

JLR benefited from an improvement in its pricing power and a favourable exchange
rate in the US dollar and the euro. The two worked in tandem and resulted in a sharp
60% jump in JLR revenue per unit to around £38,000 in June 2010 quarter compared
to the £23,800 a year ago. With the raw material costs remaining benign, it led to a
sharp improvement in the division’s operating margin and its reported net profit of
£221 million (`1,613.3 crore) in the first quarter as against a net loss of £64 million
(`467 crore) a year ago.

FINDINGS
Debt equity ratio is increasing by 42.27% as Tata took loan of banks to acquire
JLR.ROCE increases vey high by 343.60% as compared to pre acquisition as it gauges
that company that generate its earnings from the total pool of capital which
indicates profitability.Net profit margin increases as it income increases in post
acquisition as compared to pre acquisition. P/E highly decreases in post acquisition
by 60.1% which in investor point of view they will be profitable to invest to get high
earning. ROE is highly increasing by 480.15% which shows that it has more equity
than debt. EPS is increasing drastically by 480.15% which is very profitable for
investors. Operating profit margin is reduced by 41.44% which shows that company
profit margin is very less.

COMPANY’S RETURN BEFORE AND AFTER

ACQUISITION
PRE-ACQUISITION

POST-ACQUISITION

INTERPRETATION
As we can see from the line chart that the cumulative return before merger was
negative and the entire trend is moving in the negative direction due to poor returns
of tata motors.

A soon as the acquisition took place, the highly profit generating Jaguar as well as
Land Rover added to the profit and earnings of the tata motors. The brand value of
JLR added to the highly reputable Tata Group and the company’s balance sheet. This
can be clearly seen in the line chart above.

VALUATION AND INTERPRETATION

EV Multiples of Tata Corus

Tata Steel and Corus Group deal happened at high multiples compared to its peers.
We can observe that the average multiples of the peer group company stands half
compared to the deal multiples.

Sales Multiple:
The average sales multiple of its peers is 1.17x compared to the deal of 0.68x of
Corus Group’s sales. This can be possible due to high sales value, reducing the
multiple to 0.68x. The lowest multiple (Steel Authority of India) is at 0.73x.

EBITDA Multiple:
EBITDA multiple of its peers averages at 4.38x compared to the deal multiple of 7.02x
of Corus Group’s sales. Even the highest multiple (Jindal Steel & Power) is at 4.38x.
This is almost half of the deal multiple. It can be observed that Tata played very
aggressively.

EBIT Multiple:
EBIT multiple of its peers averaged at 5.54x compared to the deal of 10.19x of Corus
Group’s sales. Even the highest multiple (Jindal Steel & Power) is at 8.39x.

PE Multiple:
The PE multiple of the deal is very high on the account that the margins of Corus are
very low compared to Tata Steel and other peers. The average PE multiples is 7.95x
compared to 68.23x at which the deal haapened.

EV Multiples of Tata NTT Docomo

The deal of Tata Teleservices and NTT Docomo happened at very high multiples. We
can observe that the average multiples of the peer group company stands very low
compared to the deal multiples.

Sales Multiple:
The average sales multiple of its peers is 5.37x compared to the deal of 26.98x (as on
31st March, 2008) of Tata Teleservices’s sales. Even the highest multiple (Reliance
Communication) is at 9.24x. Thus we can conclude that Tata Teleservices got very
good price for its stake dilution for NTT Docmo.

EBITDA Multiple:
Again the average EBITDA multiple of its peers is very less, 16.35x compared to the
deal of 99.81x (as on 31st March, 2008) of Tata Teleservices’s sales. Even the highest
multiple (Reliance Communication) is at 26.74x. This is a huge difference. NTT
Docomo paid 6 times more what it should have paid to Tata.
EBIT Multiple:
EBIT multiple of its peers is 25.5x compared to the deal of 952.96x (as on 31st March,
2008) of Tata Teleservices’s sales. Even the highest multiple (Reliance
Communication) is at 41.02x.

PE Multiple:
The PE multiple for Tata Teleservices is negative as its net income is negative

Note: The multiples are high on account that Sales and the profitability of Tata
Teleservices is low, inturn giving very high multiples. Its sales stands at Rs. 1,815.5 Cr.
compared to the average sales of Rs. 11,490.6 Cr. of its peers.

FINDINGS FROM VALUATION OF ENTERPRISE VALUE

MULTIPLE
Tata Corus

Tata Steel and Corus Group deal happened at high multiples compared to its peers.
We can observe that the average multiples of the peer group company stands half
compared to the deal multiples. Even the highest multiple (Jindal Steel & Power) is at
4.38x. This is almost half of the deal multiple It can be observed that Tata played very
aggressively as it paid high enterprise value as compared to our analysis. A reason
for Corus to be sold is chance to Bail out of Debt and Financial stress. TATA Steel
Paid 7.02 Times EBITDA of Corus Enterprise Value. The PE multiple of the deal is very
high on the account that the margins of Corus are very low compared to Tata Steel
and other peers the only company who has high P/E is Jindal steel.

Tata NTT Docomo

The deal of Tata Teleservices and NTT Docomo happened at very high multiples. We
can observe that the average multiples of the peer group company stands very low
compared to the deal multiples. The average sales multiple of its peers is 5.37x
compared to the deal of 26.98x (as on 31st March, 2008) of Tata Teleservices’s sales.

Even the highest multiple (Reliance Communication) is at 9.24x. Thus we can

conclude that Tata Teleservices got very good price for its stake dilution for NTT
Docomo. The PE multiple for Tata Teleservices is negative as its net income is
negative. EBITDA multiple of its peers is very less, 16.35x compared to the deal of
99.81x (as on 31st March, 2008) of Tata Teleservices’s sales. Even the highest multiple
(Reliance Communication) is at 26.74x. This is a huge difference. NTT Docomo paid 6
times more what it should have paid to Tata. The multiples are high on account that
Sales and the profitability of Tata Teleservices is low, in turn giving very high
multiples. Its sales stands at Rs. 1,815.5 Cr. compared to the average sales of Rs.
11,490.6 Cr. of its peers.

SUMMARY

Except Tata Steel- Corus deal, all the other 2 acquisitions was well accepted by not
only well accepted by the owners of the company (the shareholders) but even made
the entire Tata group come into the eyes of fortune 500 list. In-fact it ranked at 56th
position at a global level in 2009

CONCLUSION

This study was undertaken to test what is the impact of mergers on the financials of
acquiring corporate by examining some pre- merger and post-merger financial, in
terms of impact on operating performance. The results from the analysis of pre- and
post-merger operating performance ratios for the acquiring firms in the sample
showed that there was a differential impact of mergers, for different industry sectors
in India. Type of industry does seem to make a difference to the post-merger
operating performance of acquiring firms.

Expansion through mergers and acquisition is one of the best ways for any domestic
company to step outside the shores of India in an international market place and
acquit itself as a global player

Company can turn into conglomerate in reasonably less time by capitalizing on its
strengths of efficiency and effectiveness by acquiring relatively poor performing
companies as TATA did in almost all its group of companies.
 IMPACT OF TATA MOTORS ON INDIAN MARKET

For years, Tata Motors had outsourced design requirements to specialised companies in the UK and Italy
but now has about 250 employees, including 40 designers, over its three centres. Not only is designing for
India a big challenge, the sensibilities of consumers here are also different from rest of the world. India
continues to be the “big small car” market, where consumers want the space and features of a spacious
sedan but prefer compacts.

“Indian consumers do not want to compromise on space at all and in order to understand the minor
irritants that consumers had, we brought in consumers early on into the design process,” Bose said.

So, what does the Indian consumers want from his/her car? Apart from a good looking front of the car, they
are concerned about remaining connected while they are driving, which means better display screens on
the entertainment instrumentation panel, more storage space for iPads, phones and cup holders. Tata
Motors has done small things like bring the roof lamp from above the steering wheel to the centre of the
car, as consumers wanted it that way.

The next to get transformed will be the dealerships which will become experience centres for consumers.
And the car will be sold on what the needs of the consumers are and not basis the specifications.

A clutch of products is symbolic of the new Tata Motors.

Indica
Tata Motors’ first foray into passenger cars, the small car was developed at a cost of Rs 1,700 crore. Today,
the Indica has 14.9 per cent share of the car market and is second only to leader Maruti Suzuki.
 Tata Ace
In 2005, the company launched India’s first mini-truck, which, in the 22 months since its launch, has
already sold 100,000 units and has helped increase the company’s market share to 65.4 per cent in the
last reported fiscal.
 World Truck
To be launched later this year, the World Truck (the one pictured is a different model) is a global
commercial vehicle platform that Tata Motors is developing at its Korean subsidiary, Tata Daewoo.
 Nano
A near engineering miracle, the Nano is the cheapest car in the world and its basic model is priced at Rs
100,000—only marginally more expensive than a motorcycle.
Land Rover & Jaguar
Part of Ford Motor Co., these two loss-making, but high-end, luxury brands will signal the arrival of Tata
Motors on the global stage. At $2 billion or so, these will be the most expensive acquisitions ever by the
company.

Given its Tata heritage, Tata Motors is a champion of responsible business.

Recognising the brand building capabilities of corporate social responsibility (CSR), Tata Motors
formed a CSR Committee in January 2006 comprising the Managing Director Ravi Kant and other
senior executives of the company. “Our CSR activities are largely dependent on the region in which we
operate,” says Prakash M. Telang, Executive Director-Commercial Vehicles, Tata Motors. These, he
adds, range from education, health, water and environment to employment generation. The company
has adopted several villages around its plant locations—in Pune, Jamshedpur and Lucknow—for this
purpose. Its environment and ecological initiatives range from setting up effluent treatment facilities
at its plants and tree plantation programmes. But what is also of note is the stress being laid on clean
technology—through its joint venture with Cummins Engine Company—to introduce emission control
technology in India and the still-under-development air car, even though the company feels it’s not yet
commercially viable. Employee engagement extends beyond the social functions organised and into
the domain of employability enhancement. At its upcoming Singur plant in West Bengal, for instance,
it is involved in imparting technical skills to the youth of the region—helping deflect some of the
political criticism coming its way.