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Durgesh Ranjan

4110012012
IIF
Jaguar: an overview

 1922 - Founded in Blackpool as Swallow Sidecar
company
 1960 - Jaguar name first appeared
 1975 - Nationalized in due to financial difficulties
 1984 - Floated off as a separate co in the stock market
 1990 - Taken over by Ford

Land Rover: an overview
 1948: Land Rover is designed by the Rover Car co
 1976: One millionth Land Rover leaves the production
line
 1994: Rover Group is taken over by BMW
 2000: Sold to Ford for $2.75 billion

TATA MOTORS: An overview
 TATA GROUP is 150 year old, Previously Tata
Engineering and Locomotive Company, Telco.
 India's largest passenger automobile and commercial
vehicle.
 Tata Motors was established in 1945
 Listed on the New York Stock Exchange in 2004.
 It is the 5th largest medium and heavy commercial
vehicle manufacturer in the world. listed in BSE, NSE
& NYSE.


Why was Ford selling?

 The US auto major put the two marquees on the market in
2007 after posting losses of $12.6billion in 2006 - the
heaviest in its 103-year history
 Jaguar was not able to provide any profit for ford because of
the high manufacturing costs provided in the United
Kingdom.
 The strong boy Land Rover's profit, on the other hand, was
driven by the record sale of 2.26 lakh vehicles, an 18% YoY
growth in 2007.
 Ford was combining both the brands since the products
and manufacturing of vehicles for Land Rover and Jaguar
was so intertwined.

Why to acquire JLR?

 Long term strategic commitment to automotive sector.
 Opportunity to participate in two fast growing auto
segments.
 Increased business diversity across markets and
products.
 Jaguar offered a range of “performance/luxury”
vehicles to broaden the brand portfolio.
 Benefits from component sourcing, design services
and low cost engineering


The Deal Process
 12/06/2007- Announcement from Ford that it plans to sell Land Rover
and Jaguar.
 August 2007 - Major bidders were identified
o Tata Motors,
M&M,
Ceribrus capital Management,
TPG Capital,
Apollo Management
 India’s Tata Motors and M&M arrived as top bidders ($ 2.05b & $ 1.9b)
 03/01/2008– Ford announces Tata as the preferred bidders
 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to
Tata Motors.(2.3b)
 02/06/2008– The acquisition was complete


Tata and the dream

 NEED FOR GROWTH
In the past few years, the Tata group had led the growing
appetite among Indian companies to acquire businesses
overseas in Europe, the United States, Australia and
Africa - some even several times larger - in a bid to
consolidate operations and emerge as the new
age multinationals.
Tata Motors was India's largest automobile company,
with revenues of $7.2 billion in 2006-07.With over 4
million Tata vehicles plying in India, it was the leader in
commercial vehicles and the second largest in passenger
vehicles.

 COMPETITIVE ADVANTAGE
Tata Motors was vulnerable to greater competition at
home.
 Foreign vehicle makers including Daimler, Nissan
Motor, Volvo and MAN AG had struck local alliances for
a bigger presence.
Tata Motors, which had a joint venture with Fiat for cars,
engines and transmissions in India, was also facing heat
from top car maker Maruti Suzuki India Ltd, Hyundai
Motor, Renault and Volkswagen.

Financing strategy
 Tata Motors could comfortably finance the acquisition
of Jaguar and Land Rover. The Indian automaker was
sitting on a cash pile of over Rs 6,000 crore and
generated free cash of over Rs 1,000 crore during FY07.
It could easily use these reserves to raise more funds
without endangering its finances.
 At the end of last financial year, Tata Motors‟ debt-to-
equity ratio was a low 0.56, giving it ample head room
to raise more funds.


 Low leverage of the auto biz provided funding flexibility
 At the time financed the purchase through a $3bn, 15month
bridge loan
 Additional amount of US $ 0.7 billion was for engine and
component supply, contingencies and working capital.
 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


Refinancing of the loan
• The amount was repaid in following manner
– Rs 1.92 billion Underwriting agreement with JM
financial consultants
– Rs 1.75 billion was raised through a deposit scheme from
the public
– Additional subscriptions by promoter companies-
Tata sons, Tata capital and Tata Investment Ltd.
– $ 1 billion aid package by British Government .( out of
total $ 2.3 billion )


For what Tata motors paid
3 modern plants in UK
2 advance design and engineering center
26 national sell companies
Intellectual property: free license to share technology
with Ford
Support from ford motor credit: Ford motor credit will
continue to support the sale of Jaguar and Land rover
for next 12 months
In $ million
particulars TAMO JLR consolidated
net tangible assets 2510 2246 4756
net intangible assets 111 2010 2121
vehicles financing receivables 2935 - 2935
net current assets -57 -107 536
cash 638 - 638
trade investments 233 - 233
pension asstes - 696 696
other assets 3 297 300
total assets 6373 5142 12215
warranty liability and other provisions 489 2667 3156
pension liability - 19 19
deferred tax liability 238 - 238
shareholders equity 2314 2456 2314
capital assets - - 156
minority interest 30 - 30
debt 3302 - 6302
total liability 6373 5142 12215
Balance sheet
TAMO JLR SPV Cons..
sales 10210 14214 - 24424
cost synergies - - - -
EBITDA 1196 935 - 2131
EBITDA margin 11.70% 6.60% - 8.70%
depreciation 218 699 - 917
interest 140 42 - 182
other income 105 - - 105
PBT 944 194 - 1138
interest cost of acquisition - 225 225
proforma PBT 944 194 -225 913
impact on PBT -3% - - -
In $ million
P&L A/c
Post merger
• Following Cost Rationalisation initiatives were taken
to improve cash flows:

1.Single shifts and down time at all three UK assembly
plants.
2. Supplier payment terms extended from 45 to 60 days in
line with industry standard.
3.Receivables reduced by £133 million from 38 to 27 days.
4. Inventory reduced by £217m between June 2008 and
March 2009 from 70 to 50 days .

5] Labor actions –
- Voluntary retirement to 600 employees.
- Agency staff reduced by 800.
-Offered leaves to 300 workers of Bromwhich and solihull plant.
-Additional 450 job cuts including 300 managers.

6] Agreement with Unions to implement pay freeze and longer working
hours (equivalent to approximately 20% reduction in labor costs.)

7] Engineering and capital spending efficiencies.

8] Fixed marketing and selling costs reduced in line with sales volume.

9] Reduction in all other non-personnel related overhead costs.


Problems
 Drop in share prices
 Failure of rights issue
 Huge debt burden

 Sales volume decreased by 35.2%
 Lack of consumer loans
 Issue of timing
 Operational freedom slows pace of change




 Depressed state of the global premium car market
 Jaguar/Land Rover lost 306 million pounds ($504
million) for the fiscal year ending March 2009
 Tata Motors reported a net loss of Rs3.29bn ($67
million) for the quarter to end-June
 Tata’s core commercial vehicles market in India is also
suffering from slower sales
 Extremely high manufacturing costs in Britain
 Eliminated more than 2,200 jobs

Benefits
 Tata wanted to make a global impact and it thinks that
buying these brands at a lower rate now, will give
better value later on.
 This acquisition also eases the entry of Tata in
European market which it has been eyeing for long. A
previous JV with FIAT took place, this would further
help them penetrate EU market.
 Reduce the company dependence on the Indian
market which accounted for 90% of its sales
 Increase sales in emerging markets


 Reduce dependence on mature markets
 Opportunity to spread its business across different
customer segment
 At the price staring from 63 lakh and going upto 93
lakh, it seems Tata has just got the right place to
compete with the current market leaders – BMW,
Audi, Mercedes
 Publicity on an international scale
 Access to large distribution network

 JLR had many new models lined up for next 3 years, so
no much work just profits
 Strong R & D culture and facilities
 Component sourcing, engineering and design benefits




Strengths:
Tata’s strong management
capability
Strong monetary base to invest


Weaknesses:
Jaguar’s declining sales record
Inexperience of handling such
luxury brands

Opportunities:
Support from Ford in terms of
Technology,Engine, IT,
Accounting
Adding up of luxury brands in
the product line
Access to European Market
Market is volatile and driven
by new products
Strong presence of competitors
like Mercedes, BMW, Lexus
and Infinity
Tata’s Jaguar
Land Rover
Acquisition