Tata Motors' Acquisition of Jaguar and Land Rover

Introduction:-
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. The company is the world's fourth largest truck
manufacturer, and the world's second largest bus manufacturer.

Established in 1945, Tata Motors' presence indeed cuts across the length and breadth of India.
Over 5.9 million Tata vehicles ply on Indian roads, since the first rolled out in 1954. 

Tata Motors, the first company from India's engineering sector to be listed in the New York
Stock Exchange (September 2004), has also emerged as an international automobile company.
Through subsidiaries and associate companies, Tata Motors has operations in the UK, South
Korea, Thailand and Spain. Among them is Jaguar Land Rover, a business comprising the two
iconic British brands that was acquired in 2008. In 2004, it acquired the Daewoo Commercial
Vehicles Company, South Korea's second largest truck maker. The rechristened Tata Daewoo
Commercial Vehicles Company has launched several new products in the Korean market, while
also exporting these products to several international markets. Today two-thirds of heavy
commercial vehicle exports out of South Korea are from Tata Daewoo. In 2005, Tata Motors
acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, and
subsequently the remaining stake in 2009. Hispano's presence is being expanded in other
markets. In 2006, Tata Motors formed a joint venture with the Brazil-based Marcopolo, a global
leader in body-building for buses and coaches to manufacture fully-built buses and coaches for
India and select international markets. In 2006, Tata Motors entered into joint venture with
Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market the
company's pickup vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun
production of the Xenon pickup truck, with the Xenon having been launched in Thailand in
2008.

Details of Tata Motors at the time acquisition:-

Tata Motors is India's largest automobile company, with revenues of US$ 8.8 billion in 2007-08.
With over 4 million Tata vehicles plying in India, it is the leader in commercial vehicles and
among the top three in passenger vehicles. It is also the world's fourth largest truck manufacturer
and the second largest bus manufacturer. Tata cars, buses and trucks are being marketed in
several countries in Europe, Africa, the Middle East, South Asia, South East Asia and South
America. Through subsidiaries and associate companies, Tata Motors has operations in South
Korea, Thailand and Spain. It also has a strategic alliance with Fiat. 

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 doubt over an Indian company owning the luxury brands, ownership was not considered a
major issue at all.

Jaguar Land Rover has been acquired at a cost of US$ 2.3 billion on a cash free, debt-free basis.
The purchase consideration includes the ownership by Jaguar and Land Rover or perpetual
royalty-free licenses of all necessary Intellectual Property Rights, manufacturing plants, two
advanced design centers in the UK, and worldwide network of National Sales Companies. 

Long term agreements have been entered into for supply of engines, stampings and other
components to Jaguar Land Rover. Other areas of transition support from Ford include IT,
accounting and access to test facilities. The two companies will continue to cooperate in areas
such as design and development through sharing of platforms and joint development of hybrid
technologies and powertrain engineering. The Ford Motor Credit Company will continue to
provide financing for Jaguar Land Rover dealers and customers for a transition period. Tata
Motors is in an advanced stage of negotiations with leading auto finance providers to support the
Jaguar Land Rover business in the UK, Europe and the US, and is expected to select financial
services partners shortly.
 Mode of Payment:-

Tata Motors had acquired JLR from the US-based Ford Motor Company (Ford) for US$ 2.3
billion, in June 2008. Tata Motors took a bridge loan of US$ 3 billion from a consortium of
banks and intended to repay it through the rights issue, issue of securities overseas, and
divesting its portfolio of investments. However, the company's plans to secure funds went
haywire.

Initially, Tata Motors had proposed to secure funds through three simultaneous rights issues,
one of which was of 0.5 percent convertible preference shares. Tata Motors Board approved
raising of Rs 4,000 crore (about one billion dollar) from either overseas or domestic markets
through issuance of securities.

Merger Advisors:-

Analyst believed anything between $2.5bn to $3bn for jaguar and Land Rover. Here are their
words.

Meryll Lynch analysts suggested that Jaguar and Land Rover may fetch about $1.5bn (£735m).
Earlier a private equity firm called Alchemy Partners was said to be lining up a £3bn offer for the
two luxury brands. “If you look at the financial position, [Jaguar and Land Rover] are worth
some $1bn to $1.5bn.
Ford bought Jaguar for £1.6bn in 1989 and it is believed that Ford have invested about $10bn in
Jaguar since it bought, Ford bought the Land Rover from BMW for £1.7bn in 2000.

What may hamper Tata’s?

 Union leaders of both Jaguar and Land Rover have already raised concerns about their
job security because of the sale.
 Jaguar’s sales were down nearly 32 percent for 2006 in the United States, the company’s
largest market.
 Jaguar lost more than $715 million last year and is expected to lose $550 million in 2007.
According to the analysis, Jaguar is projected to lose more than $300 million in 2008 and is not
expecting a profit for several years. These losses are mainly because of extremely high
manufacturing costs in Britain and Ford has not earn a profit from jaguar since it bought.
 Land Rover sold a record 192,500 vehicles in 2006 and is said to be profitable. Unlike the
jaguar, Land Rover is a much stronger and more profitable business but Tata’s has to buy both
the units since the products and manufacturing of vehicles for Land Rover and Jaguar is so
intertwined..
 The worried jaguar ‘s workers, they told “if the two companies are sold together, then
there was no guarantee “that a new owner would not shut down most of Jag’s manufacturing
capacity”.

The Benefits:-

Tata Motors was interested in acquiring JLR as it would reduce the company’s dependence on
the Indian market, which accounted for 90% of its sales. The company was of the view that the
acquisition would provide it with the opportunity to spread its business across different
geographies and across different customer segments

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

The Road Ahead

Tata Motors had formed an integration committee with senior executives from the JLR and Tata
Motors, to set milestones and long-term goals for the acquired entities. One of the major
problems for Tata Motors could be the slowing down of the European and US automobile
markets. It was expected that the company would address this issue by concentrating on
countries like Russia, China, India, and the Middle East.