TATA Motors Ltd Jaguar Cars Ltd

ACQUISITION

History of Tata Motors Ltd
‡ TATA MOTORS ‡ Tata Motors Limited is India's largest automobile company, with consolidated revenues of Rs. 92,519 crores (USD 20 billion) in 2009-10. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments

founded in 1922.History of Jaguar Land Rover ‡ Jaguar Cars Ltd. . ‡ Since 1948 Land Rover has been manufacturing authentic 4*4s that defines breadth of capability in their segments. is one of the world s premier manufacturers of luxury saloons and sports cars.

Future for the acquisition Implementation process Challenges ahead. .Structure of the Deal ‡ ‡ ‡ ‡ ‡ ‡ ‡ Motives behind the chosen strategy Drivers for both the companies The process followed Financing.

3 BN Sector: Automotive .Facts of the acquisition ‡ ‡ ‡ ‡ ‡ ‡ Date: 27th March 2008 Acquirer: Tata Motors Ltd Target company: Jaguar Land Rover Stake: 100 % Deal amount: US$ 2.

Timeline Jun 2007 Ford announces its plans to sell Land Rover and Jaguar Aug 2007 Major bidders are identified Jan 2008 Ford announces Tata as its preferred bidder Mar 2008 Ford agrees to sell their JLR operations to Tata Motors Jun 2008 Tata Motors acquisition of JLR is complete .

it has not been 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. ‡ Bringing down production costs and turning around the company successfully was the challenge that Ford failed to meet ‡ Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar is so intertwined.Why was Ford interested in selling? ‡ Reports said losses at Jaguar stood at USD 715 million in 2006..26 lakh vehicles. was driven by the record sale of 2. Jaguar has been a dog i.e. . on the other hand. an 18% YoY growth in 2007.

design services and low cost engineering . ‡ Benefits from component sourcing. ‡ Increased business diversity across markets and products. ‡ Opportunity to participate in two fast growing auto segments. ‡ Jaguar offers a range of performance/luxury vehicles to broaden the brand portfolio. TCS.Why was Tata Motors interested in buying? ‡ Part of Tata Group¶s ongoing strategy of internationalization ‡ Can leverage group-wide competencies in various companies such as TACO. Corus & Tata Technologies to manage JLR ‡ Long term strategic commitment to automotive sector. ‡ Land rover provides a natural fit for TML s SUV segment.

1 BN which will help managing in tax going forward Ford motor credit will continue to support the sales of JLR for around next 12 months Ford will contribute $ 600 MN of the pension fund . development & integration Both existing national sales companies of Jaguar/Land Rover and also those that are carved out of current ford operation This covers all key technologies to be transferred to JLR & perpetual royalty free license on technologies shared with ford A minimum guaranteed amount of $1. Engineering .What Tata finally got 100% stake in Jaguar TAMO has acquired the business & initially they will be operated & Land rover independently of the partner. business 3 plants in UK 2 advanced design & engineering center 26 national sales company Intellectual property rights Capital allowance Support from Ford motor credit Pension contributed by Ford These are well invested plants 4-5000 engineers engaged in testing .prototype design & power train.

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Citigroup.000 crore) through bridge loans for 15 months from a clutch of banks. ‡ Company charted out plans to raised Rs 7. The proceeds of which were be used to partfinance the JLR deal of Rs 9.Initial financing ‡ Tata Motors raised $3 billion (about Rs 12.. via Rights Issue.200 crore. including JP Morgan. ‡ The rights issue raised the equity capital of Tata Motors by 30-35 per cent by March 2009.75 cr.228. The company also planned to raise $500-600 million through an issue of securities in the foreign markets. . and State Bank of India.

‡ The company had said the funds to be raised would be utilised to part finance overall funding requirement to meet some of its strategic plans. ‡ Tata Motors had announced that its Board has approved raising of Rs 4.Tata fund JLR Deal through Cash Reserves & New Debt ‡ Tata Motors said : The $2.000 crore (about one billion dollar) from either overseas or domestic markets through issuance of securities. the company said the acquisition opportunities have to be financed upfront. .30 billion deal to acquire premium auto brands Jaguar and Land Rover would be funded through a mix of existing cash reserves and new debts. ‡ Stating that its expansion plans through organic route over the next 3-4 years might incur expenditure.

 Inventory reduced by £217m between June 2008 and March 2009 from 70 to 50 days .Post merger ‡ Following Cost Rationalisation initiatives were taken to improve cash flows:  Single shifts and down time at all three UK assembly plants.  Supplier payment terms extended from 45 to 60 days in line with industry standard.  Receivables reduced by £133 million from 38 to 27 days. .

. Agency staff reduced by 800.  Fixed marketing and selling costs reduced in line with sales volume. Labor actions     Voluntary retirement to 600 employees.  Agreement with Unions to implement pay freeze and longer working hours (equivalent to approximately 20% reduction in labor costs. Additional 450 job cuts including 300 managers. Offered leaves to 300 workers of Bromwhich and solihull plant.)  Engineering and capital spending efficiencies.  Reduction in all other non-personnel related overhead costs.

ANALYSIS .

Lexus and Infinity Support from Ford in terms of Technology.SWOT Strengths: Tata¶s strong management capability Strong monetary base to invest Weaknesses: Jaguar¶s declining sales record Inexperience of handling such luxury brands rt nities: Tata s Jaguar Land Rover Acquisition Market is volatile and driven by new products Strong presence of competitors like Mercedes. Engine. Accounting Adding up of luxury brands in the product line Access to European Market . IT. BMW.

IT.‡ ‡ 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. BMW. JLR·s strong brand image will ease acceptance of TAMO in international ‡ markets Keeping the existing management ‡ team of JLR make turning around easier ‡ ‡ ‡ . 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 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 ‡ ‡ ‡ JLR experience and designing capability would help TAMO in ‡ improving their existing products in Indian markets. 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 ‡ ‡ ‡ ‡ ‡ Strengths: Tata·s strong management ‡ capability Strong monetary base to invest ‡ Synergy due to Corus. 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. etc. Engine. 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.

Corus Leader in automotive grade steel in the European markets 16% of revenue from auto steel division Enjoys Q1 supplier status with Ford to supply steel for Jaguar and Land Rover JLR Tata Consultancy Services Provides services like engineering design. Daimler.Synergies Advantage Tata Motors ‡ The Tata group is highly diversified and can leverage its strengths to its advantage Tata Auto Components (TACO) Flagship company of TAMO s ancillary biz Manufacturing. Ford. Ford. consulting services and global sourcing Major customers are Chrysler. GM. Honda and Nissan . Chrysler. Engineering and Supply chain management Customers include Global OEMs like Ford. FIAT Tata Steel . manufacturing solutions and sourcing services Automotive division accounted for 15% revenues Major customers are Chrysler. GM INCAT Provides services like supplier programs.

Synergies Advantage JLR ‡ Revenue synergies limited in the medium term (2-3 years) ± In the long-run Tata Group and Tata Motors footprint in South-East Asia should help Jaguar/Land Rover diversify their geographic dependence from US (30% of volumes) and Western Europe (55% of volumes) .

Any drop in profitability would have a material impact on TAMO s consolidated financials. ‡ A prolonged downturn in commercial vehicles demand would stretch domestic profitability and cash flow.Risks in the deal ‡ The key risk after this acquisition would be the performance of JLR. . ‡ Any failure to launch the new products within the forecast timeframe is also a risk to our estimates.

2% Operational freedom slows pace of change Tata s core commercial vehicles market in India is also suffering from slower sales ‡ Extremely high manufacturing costs in Britain ‡ Depressed state of the global premium car market .Challenges ‡ ‡ ‡ ‡ ‡ Drop in share prices Huge debt burden Sales volume decreased by 35.

engineering and design benefits . so not much work just profits ‡ Strong R & D culture and facilities ‡ Component sourcing.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. ‡ JLR had many new models lined up for next 3 years. this will further help them penetrate EU market. A previous JV with FIAT took place. ‡ Technology transfer especially environmental friendly technologies to tap the international markets ‡ This acquisition also eases the entry of Tata in European market which it has been eyeing for long.

Mercedes ‡ Publicity on an international scale ‡ Access to large distribution network . Tata has got the bandwidth to compete with the current market leaders BMW. Audi.‡ 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( With prices ranging from 63 lakh to 93 lakh.

794. ‡ But today the financial performance shows JLR is the star in the TATA stable and has to remain an integral part of TATA for future growth.Current Status ‡ Jaguar Land Rover global sales in December 2009 were 21. as PAT decreased and vehicle sales declined coupled with rising commodity prices. higher by 45% ‡ PAT increased significantly from 2009 to 2010 from -2465 crores to 2517 crores ‡ EBITDA margins has recovered (back to a healthy 11%) and in lines with previous years even though The deal made impact during the slow down.340. higher by 5%.134 vehicles. ‡ Jaguar sales for the month were 4. . while Land Rover sales were 16. higher by 33%.

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INCREASE IN PAT & EBITDA MARGIN IN 2009 .10 .

London DB analysis report Automobile associates SIAM website .References ‡ ‡ ‡ ‡ ‡ Tata Motors website Financial times.

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