You are on page 1of 7

Case Study

Strategic Management
10th August 2010

Submitted to:
Dr. S. Bajaj FORE School of Management

Submitted by:
Ashutosha Kumar Jha -91011 Mohd. Faraz Khan - 91033 Nishant Singh - 91039 Roshan Sonthalia - 91045 Smriti Gupta -91054 Stuti Gupta - 91056

Germany. In September 2006.Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 2. announced that it had completed the acquisition of the two iconic British brands . In March . Tata Motors was interested in acquiring JLR as it will reduce the company’s dependence on the Indian market.INTRODUCTION In June 2008. In March 1999. According to industry analysts. Jaguar. Forming a part of the purchase consideration were JLR's manufacturing plants. TATA . two advanced design centers in the UK. After Ford acquired Jaguar. and Italy. but also started wiping out the JLR market. Volvo was acquired for US$ 6. There was widespread skepticism in market over an Indian company owning the luxury brands. but in some markets like Japan. Ford established the PAG with Aston Martin. funding risks. currency risks etc. The credit rating companies also took a negative outlook toward this deal because of the huge debt requirement to complete the deal. Citigroup. Onset of recession not only made investment look mistimed.5 billion. two advanced design centers in the UK. which accounted for 90% of its sales. national sales companies spanning across the world and also licenses of all necessary intellectual property rights. and also licenses of all necessary intellectual property rights.Jaguar and Land Rover. Market conditions were extremely tough. During the year.JLR deal Tata had completed this biggest buy-out in the automobile space by an Indian company on June 2. and State Bank of India.000 crore) through bridge loans for 15 months from a clutch of banks. 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 company acquired Jaguar from British Leyland Limited in 1989 for US$ 2. 2008 as it bought the ownership of luxury brands .45 billion. Tata Motors raised $3 billion (about Rs 12. The deal included the purchase of JLR's manufacturing plants. The sales of Jaguar in many markets declined. Tatas needed to invest a lot in brand building to make JLR profitable. as it had increased the earnings volatility. given the difficult economic conditions in the key markets of JLR including the US and Europe. it still recorded high sales. adverse economic conditions worldwide in the 1990s led to tough market conditions and a decrease in the demand for luxury cars. national sales companies spanning across the world. Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors. India-based Tata Motors Ltd. some of the issues that could trouble Tata Motors were economic slowdown in European and American markets.3 billion. especially in the key US market. President and CEO of Ford. and it also became a part of the PAG. including JP Morgan. Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation in the automobile industry. Allan Mulally (Mulally). as part of the restructuring exercise called the ‘Way Forward' plan decided to dismantle the PAG. and Lincoln.

Three. "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. for eg. The whole cost synergy that can be created can be seen in the following diagram. One. After failing to re-brand and integrate these luxury brands with its product portfolio. and luxury marquees like the Jaguar and Land Rover. Ford sold the Aston Martin sports car unit for US$ 931 million. Chairman. and Anglo-Dutch Steel maker Corus (Refer to Exhibit I for the details of the group's international acquisitions). 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. We aim to support their growth.500 Nano." Tata Motors stood to gain on several fronts from the deal.2007. Ratan Tata. this deal provided Tata an instant recognition and credibility across globe which would otherwise would have taken years. On acquiring JLR. This would provide Tata Motors access to latest technology which would also allow Tata to improve their core products in India. . 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. Ford announced that it was considering selling JLR. This would have provided a synergy for TATA Group on a whole. In June 2007. Why did TATA go for JLR? Tata Motors had several major international acquisitions to its credit. Tata Group. Four. said. It had acquired Tetley. keeping their identities intact. South Korea-based Daewoo's commercial vehicle unit. Tata Motors would own the world's cheapest car the US$ 2. 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. Ford Motors felt that acquisition was not the right way of penetrating into the upscale segment. Tata also got two advance design studios and technology as part of the deal. After the acquisition. 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.

GM etc. Ford. Daimler. • Customers include Chrysler. TACO TATA Corus TCS • Provides engineering design. FIAT etc. as it had increased the earnings volatility. consolidating brands and dropping model lines and deferring R&D projects to conserve funds. This was in addition to the US$ 2. • Customers inc. Five. Is deal really worth it? Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors. consulting services and global outsourcing. • Leader in the automative grade steel. given the difficult economic conditions in the key markets of JLR including the US and Europe. . Ford. Worldwide car sales are down 5% as compared to the previous year.• TAMO's flagship ancillary biz. coupled with the downturn in the global automobile industry. • 16% of revenue fron auto steel division. was expected to impact the profitability of the company in the near future. Tata Motors had to incur a huge capital expenditure as it planned to invest another US$ 1 billion in JLR. reducing costs wherever possible. would help Tata Motors become one of the major players in the global automobile industry. This. Moreover. in the long run TATA Motors will surely diversify its present dependence on Indian markets (which contributed to 90% of TATA’s revenue). • Major customer include Chrysler. which had a global presence and a repertoire of well established brands. 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. manufacturing solutions and sourcing services.3 billion it had spent on the acquisition. Analysts were of the view that the acquisition of JLR. INCAT • Provides services like supplier programs. GM etc. Ford . 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). The automobile industry the world over is rationalizing production facilities.

The financial burden on Tata Motors was expected to increase further with the pension liability of JLR coming up for evaluation in April 2009. the Chinese domestic car market has grown by 7%. Jaguar and Land Rover lost an additional $510 million in the 10 months Tata owned it until March 2009. 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. just on its India operations. Ford purchased JLR at $5 bn and sold at almost half the price to TATA after operating it for losses for few years. Disadvantages by not going for this acquisition? There was immense pressure from the shareholders. 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 $3 billion loans it racked up for the Jaguar/Land Rover shopping bill. In India the passenger car market has remained more or less flat compared to the previous year. . Tata Motors announced that due to lack of funds it may be forced to roll over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 billion.7 billion in revenues. analysts’ community etc. In January 2009. Since then. its fortunes have been unsure. Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the previous year. TAMO would have lacked in robust designing capabilities. 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. at that time no other major automobile brand was available for acquisition with such designing and R&D capabilities. While China has witnessed a significant reduction in its automotive-related exports and supplies to automobile companies. losing a record $517 million on $14.The Chinese and Indian domestic markets for cars have been exceptions. Tata would not have been able enter into the premium segment (>10 lakhs) in India. 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). Above all.All through the fiscal year ended March 2009 the company bled money.

etc.TOWS Matrix 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. • JLR’s strong brand image will ease acceptance of TAMO in international markets • Keeping the existing management team of JLR make turning around easier . Accounting • Complete product line with addition of luxury brands • Access to European and American Market Strengths: • 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 Weaknesses: • Inexperience in Handling luxury automobile brand • Inexperience in turning around loss making company • R & D and designing capabilities • JLR would give TAMO an inhouse 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 Threats • Volatility in market driven by new products • Strong presence of competitors like Mercedes. • 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 • 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 • JLR experience and designing capability would help TAMO in improving their existing products in Indian markets. Lexus and Infinity • Receding sales and brand image • Downturn making Investment riskier and costlier • 90% of TAMO revenues comes from one market alone-India • Acquisitions like JLR will help TAMO in competing with brands like Merc. Engine. BMW. IT.

Understand the advantages and disadvantages of cross-border acquisitions. Understand the need for growth through acquisitions in foreign countries . Examine Tata Motors' inorganic growth strategy. Examine the rationale behind Tata Motors' acquisition of Jaguar and Land Rover.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.

Understand the need for growth through acquisitions in foreign countries . Examine the rationale behind Tata Motors' acquisition of Jaguar and Land Rover.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. Understand the advantages and disadvantages of cross-border acquisitions. Examine Tata Motors' inorganic growth strategy.