Tata motors acquisition of Jaguar<br />Group 1<br />
Jaguar: an overview<br />1922 - Founded in Blackpool as Swallow Sidecar company<br />1960 - Jaguar name first appeared <br />1975 - Nationalized in due to financial difficulties<br />1984 - Floated off as a separate co in the stock market<br />1990 - Taken over by Ford<br />
Land Rover: an overview<br />1948: Land Rover is designed by the Rover Car co<br />1976: One millionth Land Rover leaves the production line<br />1994: Rover Group is taken over by BMW<br />2000: Sold to Ford for $2.75 billion<br />
TATA MOTORS: An overview<br />TATA GROUP is 150 year old, Previously Tata Engineering and Locomotive Company, Telco.<br />India's largest passenger automobile and commercial vehicle.<br />Tata Motors was established in 1945<br />Listed on the New York Stock Exchange in 2004. <br />It is the 5th largest medium and heavy commercial vehicle manufacturer in the world. listed in BSE, NSE & NYSE.<br />
Why was Ford selling?<br />The US auto major put the two marquees on the market in 2007 after posting losses of $12.6billion in 2006 - the heaviest in its 103-year history<br />Jaguar was not able to provide any profit for ford because of the high manufacturing costs provided in the United Kingdom.<br />The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007.<br />Ford was combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar was so intertwined.<br />
Why to acquire JLR?<br />Long term strategic commitment to automotive sector.<br />Opportunity to participate in two fast growing auto segments.<br />Increased business diversity across markets and products.<br />Jaguar offered a range of “performance/luxury” vehicles to broaden the brand portfolio.<br />Benefits from component sourcing, design services and low cost engineering<br /> <br />
The Deal Process<br />12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar.<br />August 2007 - Major bidders were identified<br /><ul><li> Tata Motors,</li></ul>M&M, <br />Ceribruscapital Management,<br /> TPG Capital,<br /> Apollo Management <br />India’s Tata Motors and M&M arrived as top bidders ($ 2.05b & $ 1.9b)<br />03/01/2008– Ford announces Tata as the preferred bidders<br />26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors.(2.3b)<br />02/06/2008– The acquisition was complete<br /> <br />
Tata and the dream<br />NEED FOR GROWTH<br /><ul><li>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.</li></li></ul><li>COMPETITIVE ADVANTAGE<br /><ul><li>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.</li></li></ul><li>Financing strategy<br />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.<br />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.<br /> <br />
Low leverage of the auto biz provided funding flexibility<br />At the time financed the purchase through a $3bn, 15month bridge loan<br />Additional amount of US $ 0.7 billion was for engine and component supply, contingencies and working capital.<br /> It intended to refinance the loan through long-term funds<br />valuable stakes in group companies<br />Owns $400m of Tata Steel at current prices<br />Owns stake in Tata Sons (Tata Group’s holding company) worth at least $600m<br /> <br />
Refinancing of the loan<br /><ul><li>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 )</li></li></ul><li>For what Tata motors paid <br /><ul><li>3 modern plants in UK
Post merger <br /><ul><li>Following Cost Rationalisation initiatives were taken to improve cash flows: </li></ul>1.Single shifts and down time at all three UK assembly plants.<br />2. Supplier payment terms extended from 45 to 60 days in line with industry standard. <br />3.Receivables reduced by £133 million from 38 to 27 days.<br />4. Inventory reduced by £217m between June 2008 and March 2009 from 70 to 50 days .<br />
5] Labor actions – <br /> - Voluntary retirement to 600 employees.<br /> - Agency staff reduced by 800.<br /> -Offered leaves to 300 workers of Bromwhich and solihull plant.<br /> -Additional 450 job cuts including 300 managers.<br />6] Agreement with Unions to implement pay freeze and longer working hours (equivalent to approximately 20% reduction in labor costs.)<br />7] Engineering and capital spending efficiencies. <br />8] Fixed marketing and selling costs reduced in line with sales volume. <br />9] Reduction in all other non-personnel related overhead costs. <br />
Problems <br />Drop in share prices<br />Failure of rights issue<br />Huge debt burden<br />Sales volume decreased by 35.2%<br />Lack of consumer loans<br />Issue of timing<br />Operational freedom slows pace of change<br />
Depressed state of the global premium car market<br />Jaguar/Land Rover lost 306 million pounds ($504 million) for the fiscal year ending March 2009<br />Tata Motors reported a net loss of Rs3.29bn ($67 million) for the quarter to end-June<br />Tata’s core commercial vehicles market in India is also suffering from slower sales<br />Extremely high manufacturing costs in Britain<br />Eliminated more than 2,200 jobs<br />
Benefits <br />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.<br />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 will further help them penetrate EU market.<br />Reduce the company dependence on the Indian market which accounted for 90% of its sales<br />Increase sales in emerging markets<br />
Reduce dependence on mature markets<br />Opportunity to spread its business across different customer segment<br />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<br />Publicity on an international scale<br />Access to large distribution network<br />
JLR had many new models lined up for next 3 years, so no much work just profits<br />Strong R & D culture and facilities<br />Component sourcing, engineering and design benefits<br />