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Submitted by Neha Garg (05216603909) Teena Sharma (05316603909) Arun Singh (05416603909)
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. Mergers and acquisition, now a day’s has become a well practiced phenomenon in the Indian corporate sector. In 2007, there were a total of 676 M&A deals and 405 private equity deals, in 2007, the total value of M&A and PE deals was USD 70 billion, Total M&A deal value was close to USD 51 billion, Private equity deals value increased to USD 19 billion. The growth in mergers and acquisition came because of three reasons:
(a) Globalisation and increased competition (b) Concentration of companies to achieve economies of scale (c) Cash Reserves with corporate
This Merger and acquisition is seeing a major change in trend and now a day’s Cross-border deals are growing faster than domestic deals. And of course Private Equity (PE) houses have funded projects as well as made a few acquisitions in India. In year 2008, M&A deals in India in 2008 totaled worth 19.8 bn $, less compared to last year which stood at 33.1 bn $. Decline of M&A activity was in line with the global activity. Cross border M&A totaled 8.2 bn $ compared to 18.7 bn $. But one deal of acquisition happened that year which took the world by storm. That is Tata Motor’s acquisition of Jaguar-Land Rover. On March 26, 2008, Tata Motors entered into an agreement with Ford for the purchase of JLR. Tata Motors agreed to pay US$ 2.3 billion in cash for a 100% acquisition of the businesses of JLR. As part of the acquisition, Tata Motors did not inherit any of the debt liabilities of JLR - the acquisition was totally debt free.
and the purchase was completed on 2 June 2008. which also includes the Rover. based on figures for 2007. The company manufactured its first commercial vehicle in 1954 in collaboration with Daimler-Benz AG. which ended in 1969. South Africa and Thailand. and in 2005 it was ranked among the top 10 corporations in India with an annual revenue exceeding INR 320 billion. and one of the world's largest manufacturers of commercial vehicles. now known as Tata Daewoo Commercial Vehicle. Part of the Tata Group. giving it controlling rights in the company. Tata Motors was listed on the NYSE in 2004. midsize car and utility vehicle segments.81% market share in 2007 according to OICA data. Lucknow. It is India's largest passenger automobile and commercial vehicle manufacturing company and a midsized player on the world market with 0. in South Korea. acquired a 21% stake in Hispano Carrocera SA. formerly known as TELCO (TATA Engineering and Locomotive Company). India. In March 2008. In 2004. when the company began manufacturing locomotives. It also. it finalized a deal with Ford Motor Company to acquire their British Jaguar Land Rover (JLR) business. . Established in 1945. is a multinational corporation headquartered in Mumbai. Tata Motors is a dual-listed company traded on both the New York Stock Exchange and the Indian Stock Exchange (where it is a component of the Sensex index). Daimler and Lanchester brand names.PROFILE OF TATA MOTORS: Tata Motors Limited. and among the top three in passenger vehicles with winning products in the compact. Ahmedabad and Pune in India as well as manufacturing facilities in Argentina. it bought Daewoo's truck manufacturing unit. Tata Motors has its manufacturing base in Jamshedpur. as well as the second largest automaker of commercial vehicles. The OICA ranked it as the world's 19th largest automaker. today it is the leader in commercial vehicles in each segment. Pant nagar. The company is the world’s fourth largest truck manufacturer. and the world’s second largest bus manufacturer.
Included in the deal were the rights to three other British brands. England and are manufactured in one of three English Jaguar plants. On 11 June 2007. originally making motorcycle sidecars before switching to passenger cars. Between Ford purchasing Jaguar in 1989 and selling it in 2008 it did not earn any profit for the Dearbornbased auto manufacturer. along with Land Rover and retained the services of Goldman Sachs. Jaguar was founded as the Swallow Sidecar Company by Sir William Lyons in 1922. Halewood near Liverpool and Gaydon in Oxfordshire. as well as two dormant brands Lanchester and Rover. Ford announced that it had agreed to sell its Jaguar and Land Rover operations to Tata Motors of India. On 2 June 2008. Jaguar's listing on the London Stock Exchange was removed on 28 February 1990. but was delayed until March 2008. Following several subsequent changes of ownership since the 1960s. Jaguar's own Daimler. The Ford Motor Company made offers to the US and UK Jaguar shareholders to buy their shares in November 1989. from 2000. In 1999 it became part of Ford's new Premier Automotive Group along with Aston Martin.7 billion. ( better known as Jaguar) is an automaker from England. Aston Martin was subsequently sold off in 2007. Land Rover. On 26 March 2008. which ended when Ford acquired Jaguar in 1989.PROFILE OF JAGUAR: Jaguar Cars Ltd. Volvo Cars and. Castle Bromwich in Birmingham. Jaguar was listed on the London Stock Exchange and became a constituent of the FTSE 100 Index. and that the sale was expected to be completed by the end of the second quarter of 2008. Morgan Stanley and HSBC to advise it on the deal. United Kingdom that manufactures luxury and executive motor car. The name was changed to Jaguar after the second world war due to the unfavourable connotations of the SS initials. Ford announced that it planned to sell Jaguar. Jaguar cars are designed in an engineering centre at their headquarters in Coventry. The sale was initially expected to be announced by September 2007. . the sale to Tata was completed at a cost of £1.
British Aerospace and BMW. funding risks.Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 2. the Land Rover brand developed. Starting out as a model in the Rover Company's product range. all capable of four-wheel drive. announced that it had completed the acquisition of the two iconic British brands . and England. Forming a part of the purchase consideration were JLR's manufacturing plants. including British Leyland. Originally the term Land Rover referred to one specific vehicle.3 billion. West Midlands. some of the issues that could trouble Tata Motors were economic slowdown in European and American markets.PROFILE OF LAND ROVER Land Rover is an all-terrain vehicle and Multi Purpose Vehicle (MPV) manufacturer. India-based Tata Motors Ltd. then as a separate company. There was widespread skepticism in market over an Indian company owning the luxury brands. the company was sold by BMW to the Ford Motor Company. HISTORIC DEVELOPMENT In June 2008. especially in the key US market. developing a range of fourwheel drive capable vehicles under a succession of owners. and also licenses of all necessary intellectual property rights. Onset of recession not only made investment look mistimed. based in Solihull. Ford sold its Jaguar and Land Rover operations to Tata Motors. In 2000. . currency risks etc. becoming part of their Premier Automotive Group. two advanced design centers in the UK. national sales companies spanning across the world. Market conditions were extremely tough. a pioneering civilian all-terrain utility vehicle launched on 30 April 1948. but also started wiping out the JLR market. In June 2008. at the Amsterdam Motor Show. According to industry analysts. first as a marquee. but was later used as a brand for several distinct models. Tatas needed to invest a lot in brand building to make JLR profitable.
Ford announced that it was considering selling JLR. and it also became a part of the PAG. it still recorded high sales.TATA . . including JP Morgan. Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors.JLR deal Tata had completed this biggest buy-out in the automobile space by an Indian company on June 2.Jaguar and Land Rover. Germany. and Lincoln. given the difficult economic conditions in the key markets of JLR including the US and Europe. 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 deal included the purchase of JLR's manufacturing plants. 2008 as it bought the ownership of luxury brands . Ford sold the Aston Martin sports car unit for US$ 931 million. Ford established the PAG with Aston Martin. Ford Motors felt that acquisition was not the right way of penetrating into the upscale segment. Allan Mulally (Mulally). The company acquired Jaguar from British Leyland Limited in 1989 for US$ 2. as part of the restructuring exercise called the ‘Way Forward' plan decided to dismantle the PAG.5 billion. Tata Motors raised $3 billion (about Rs 12. During the year. adverse economic conditions worldwide in the 1990s led to tough market conditions and a decrease in the demand for luxury cars. Jaguar. After failing to re-brand and integrate these luxury brands with its product portfolio.45 billion. national sales companies spanning across the world and also licenses of all necessary intellectual property rights. In March 2007. Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation in the automobile industry. as it had increased the earnings volatility. After Ford acquired Jaguar. President and CEO of Ford. and Italy. Citigroup. In September 2006. and State Bank of India.000 crore) through bridge loans for 15 months from a clutch of banks. Volvo was acquired for US$ 6. Tata Motors was interested in acquiring JLR as it will reduce the company’s dependence on the Indian market. two advanced design centers in the UK. The credit rating companies also took a negative outlook toward this deal because of the huge debt requirement to complete the deal. In June 2007. which accounted for 90% of its sales. but in some markets like Japan. In March 1999. The sales of Jaguar in many markets declined.
Tata also got two advance design studios and technology as part of the deal. 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. This would provide Tata Motors access to latest technology which would also allow Tata to improve their core products in India. After the acquisition. It had acquired Tetley. Ratan Tata. and Anglo-Dutch Steel maker Corus (Refer to Exhibit I for the details of the group's international acquisitions). Chairman. 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. Along with it due to TATA’s footprints . for eg. in the long run TATA Motors will surely diversify its present dependence on Indian markets (which contributed to 90% of TATA’s revenue). Indica and Safari suffered from internal noise and vibration problems. the acquisition would help the company acquire a global footprint and enter the high-end premier segment of the global automobile market. This would have provided a synergy for TATA Group on a whole. We aim to support their growth. One. We have enormous respect for the two brands and will endeavor to preserve and build on their heritage and competitiveness.500 Nano. Four. On acquiring JLR.Why did TATA go for JLR? Tata Motors had several major international acquisitions to its credit. this deal provided Tata an instant recognition and credibility across globe which would otherwise would have taken years. Tata Group. Two. 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. South Korea-based Daewoo's commercial vehicle unit." Tata Motors stood to gain on several fronts from the deal. keeping their identities intact.the US$ 2. said. and luxury marquees like the Jaguar and Land Rover. "We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business. Five. The whole cost synergy that can be created can be seen in the following diagram. Tata Motors would own the world's cheapest car . Three.
was expected to impact the profitability of the company in the near future.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. Tata Motors had to incur a huge capital expenditure as it planned to invest another US$ 1 billion in JLR. would help Tata Motors become one of the major players in the global automobile industry. its fortunes have been unsure. While China has witnessed a significant reduction in its automotive-related exports and supplies to automobile companies. reducing costs wherever possible. Within the space of a year. The automobile industry the world over is rationalizing production facilities. 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 was in addition to the US$ 2. The Chinese and Indian domestic markets for cars have been exceptions. consolidating brands and dropping model lines and deferring R&D projects to conserve funds. . as it had increased the earnings volatility. Analysts were of the view that the acquisition of JLR. Tata Motors has gone from being a developing-world success story to a cautionary tale of bad timing and overly ambitious expansion plans. Is deal really worth it? Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors. given the difficult economic conditions in the key markets of JLR including the US and Europe. Since then. coupled with the downturn in the global automobile industry. 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. 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.3 billion it had spent on the acquisition. This. Worldwide car sales are down 5% as compared to the previous year. Moreover.
at that time no other major automobile brand was available for acquisition with such designing and R&D capabilities. losing a record $517 million on $14. . Tata would not have been able enter into the premium segment (>10 lakhs) in India. Above all.All through the fiscal year ended March 2009 the company bled money. In January 2009. Ford purchased JLR at $5 bn and sold at almost half the price to TATA after operating it for losses for few years. Jaguar and Land Rover lost an additional $510 million in the 10 months Tata owned it until March 2009. The financial burden on Tata Motors was expected to increase further with the pension liability of JLR coming up for evaluation in April 2009.Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the previous year. TAMO would have lacked in robust designing capabilities. Tata Motors announced that due to lack of funds it may be forced to roll over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 billion. analysts’ community etc. 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. 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). Disadvantages by not going for this acquisition? There was immense pressure from the shareholders. just on its India operations.7 billion in revenues.
SWOT ANALYSIS Strength Weakness Opportunity Threats • Tata’s strong management capability • Strong monetary base to invest • Synergy due to Corus. TACO and TCS • Experience in growing market like India • New product development and brand building experience • Inexperience in Handling luxury automobile brand • Inexperience in turning around loss making company •R & D and designing capabilities • 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. • JLR’s strong brand image will ease acceptance of TAMO in international markets • Keeping the existing management team of JLR make turning around easier • Volatility in market driven by new products • Strong presence of competitors like Mercedes. Lexus and Infinity • Receding sales and brand image • Downturn making Investment riskier and costlier • 90% of TAMO revenues comes from one market alone-India . like Corus • JLR experience and designing capability would help TAMO in improving their existing products in Indian markets. BMW.
Having said that. the German car manufacturers could benefit even more. This could put pressure or delay the recovery plans of Jaguar. thus cutting the industry’s realizations. we believe that the one of the key risks to the profitability of the company would be currency risks. . Sharp fall in the euro improved pricing capability of the three German car manufacturers JLR could benefit from depreciation of the GBP against the USD—but by the same logic. It should be noted that UK account for around 30% of the revenues and since GBP has been appreciating against the USD. German manufacturers could use this to their advantage and start offering higher discounts. it is a cause of concern. Strategy to reduce dependence on mature market JLR derived 80% of their sales from the North America and Europe which a cause of concern as the automobile sales in these regions is under pressure. as the euro has depreciated more against the US$ compared to GBP. So.CURRENT ISSUES Currency risks – an issue for profitability As the manufacturing locations for JLR are situated in UK. management has shown confidence in the five year plans and claims that the plans have factored in the decline in sales in the mature market.
000 units FY10 in China and is targeting sales of more than 20. the sales in emerging markets (Asia Pacific and RoW) have improved significantly. India and Brazil). . in turn. these would be the demand drivers of the 21st century. the continuance of the same holds key for the company to provide cushion against declining sales in the North American and European markets especially when 80% of the sales in FY2006 came from Europe and US. would generate increased sales. While.000 units in FY11.JLR has traditionally been a major brand in developed markets (US and Europe) but the company has lately increased its focus on emerging markets (China. further expansion of dealerships and product development operations are in process. The company already has sales of more than 17. On the Indian operations front. This. Going forward.
Outstanding debt on the consolidates financial statement of the Tata after Acquisition Over the last 12-15 months. .4% YoY domestic growth in our estimates for FY09 and FY10 respectively. Profitability in domestic market could come under pressure While the domestic M&HCV segment remains strong with TTML enjoying strong pricing power. Having said that. TTML has adopted a number of measures including a rights issue (differential voting rights). our channel check indicates that Tata Motors can surpass our estimates. taking its debt equity to 4x on account of the USD 3bn bridge loan taken for the JLR acquisition.18. Existing business contains multiple triggers during FY09 and FY10 The likely recovery in the M&HCV segment together with a series of new product line ups in passenger vehicle segment should enable the company to generate adequate profitability during FY09-FY10. it could also substantially improve TTML’s credit rating – thereby allowing it to raise capital for future capex requirement at competitive rates. We have build in a case of 10% and 6. While a reduced debt burden could imply lower interest expenses. stake sale in group companies. etc to bring its huge debt (taken primarily to fund JLR acquisition) under control. TTML has successfully reduced its debt burden to Rs. TTML’s consolidated debt had shot up to Rs. other segments (LCVs and cars) face strong competitive pressures. This could restrict its ability to hike prices in an inflationary environment. Rising commodity prices could also put pressure on margins.750 cr as of FY09. over FY10. early conversion of FCCBs. In addition. However. TTML’s depreciation costs are likely to increase substantially as various plants are made operational.23.800 cr as of FY10 through various initiatives.
it could result in higher sales. it can however have a negative impact. the government has given its nod to free petroleum products from its clutch. the net amount of product development cost carried forward in the balance sheet was Rs. This included Rs. Further the CWIP as on March 2009 includes a sum of Rs.5 cr spent in FY09. On a short term. freight rates and their behavior is an important consideration. However for CV sales. 2460.7 cr towards product development expenses. There can be no assurance as to whether and when the benefits of this expenditure will be realized. 467.5 cr. 530. In case the freight rates continue to remain buoyant. The increase in both car and fuel price may dampen consumer sentiment in a short term. Large spending on product development may not result in immediate benefit: As at the end of FY09. Also auto companies plan to take price hike in July 2010. TTML feels that the price hike will not have a big impact in long term. as the cost of ownership is likely to shoot up. diesel and cooking fuel. the oil ministry has decided to hike petrol.Rise in fuel price Going ahead with the Kirit Parikh’s recommendations. which will be now driven by the market rates. However. .
1 bn for taxation purposes. The agreement includes supply of engines for 79 years manufactured by JLR and Ford Ford will continue to supply Jaguar Land Rover for differing periods with power trains. located in UK and 26 national sales companies. such as environmental and platform technologies. This includes the 3 manufacturing plants.EXPLORATION OF ACTUAL OR EXPECTED IMPACT Key highlights of the deal Tata Motors has signed a share purchase agreement to acquire the business of Jaguar and Land Rover (JLR) in an all cash deal of US$ 2. Ford will contribute US$ 600 m to pension fund which will be sufficient to meet the requirements.3 bn. 2 Advanced designed centers. Ford Motor Credit Company will provide financing for Jaguar and Land Rover dealers and customers during a transitional period. Ford has guaranteed for a minimum capital allowance of US $ 1. . There is no debt in the books except for trade payables . stampings and other vehicle components. The deal includes perpetual royalty free licenses. The regulatory approval will take around 2 months time. of up to 12 months. in addition to a variety of technologies. which can vary by market.
The five year plan that the management has agreed upon factors in the decline in sales in matured markets.88 in 2008-09.571.5% over Rs. The management stressed on the fact that JLR combined is a profitable business and has made profits in each of the quarter of FY2007. 70. 48.519. a significant turnaround from a loss of Rs. Tata Motors today reported consolidated revenues (net of excise) at Rs.25 crores posting a growth of 30.129. 2. There has been strong volume growth both at Tata Motors and at Jaguar Land Rover. 56.95 crores in the previous year. The Consolidated Profit before Tax (PBT) for the year was Rs. The Consolidated Profit after tax (PAT) for the year was Rs. 3.25 crores. .64 crores compared to a Loss before Tax of Rs.505. 2.25 crores in the previous year. However. Tata Motors has reported a Basic Earnings Per Share (EPS) of Rs. 92.64 in 2009-10 for its consolidated operations in 2009-10 as against a Loss Per Share of Rs.880. the management did not share financials.522.06 crores. 2.
Increase in the share price of TATA motors after acquisition. .
China etc is likely to negate the impact of a slowdown in Europe. improved product mix has resulted in improved average realizations in FY10. JLR has turned around in Q3FY10 and further posted improved earnings in Q4FY10 (reported PAT of ₤73 mn). Further. . Led by the aggressive cost cutting initiatives as well as a revival in volumes and average realizations.JLR’s performance improving: Land Rover volumes have recovered over the last few months. This is also highlighted by the fact that JLR volumes have remained stable over the last few months despite the ongoing crisis in Europe. led by a complete revamp of the product portfolio in FY10. Further. Jaguar volumes are likely to get a leg-up in FY11 with the soon-to-be-launched and much-awaited Jaguar XJ. New model launches and recovery in other key markets including US.
May be the deal is not sounding convincing in the first year of its operation but of course the technological knowledge and advancement it will bring to Tata Motors with its world class R & D. Jaguar and Land Rover. Tata Motors. But. Tata will sell the Jaguar.505. XF and XKR series for between Rs 63 lakh and Rs 92 lakh. were launched here at prices as rich as their features." Tata group Chief Ratan Tata told reporters here announcing the launch. JLR has been well received and well established in India (in the past). two of Britain's most luxurious and elegant auto brands.CONCLUSION On June 28. which had its origins in a motorcycle sidecar company. while Land Rover's Discovery and Range Rover would be priced between Rs 63 lakh and Rs 89 lakh. still the deal mean a lot from business point of view as it is a major step of India Inc. suffered a net loss of Rs 2.. the country's largest automobile company. but over the years this brand has been disconnected from India.500 crore loss on account of them.. although their Indian owner Tata Motors swallowed a Rs 2. 2009 Sunday. "It's quite a memorable day in the history and heritage of Tata Motors.25 crore in 2008-09 mainly on account of JLR that it acquired in March 2008. to really become Global as well as on emotional point of view as it brought pride to India. The expensive JLR marquee suffered on account of the economic meltdown. it will surely benefit Tata Motor in long run and will establish it as a major player in global auto market .
tatamotors. Manab Thakur – Internaltional Management 2.nseindia.REFERENCES Books: 1.wikipedia. www.com 3.com . www. Charles W L Hill.com 5.com 4.google.www. www. Arun K Jain – International Business Websites: 1.nifty. www.com 2.
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