M&a project   tata jlr case (final)
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Tata-JLR Acquisition Deal

Tata-JLR Acquisition Deal

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M&a project   tata jlr case (final) M&a project tata jlr case (final) Document Transcript

  • Merger and Acquisition Research Report Tata Motors and JLR Case Submitted By: Group 2, EPGDIB VSAT 2011-12 Batch Members Include: 1. Mukesh Dhaniya (Roll No. 36) 2. Pankaj Kotwal (Roll No. 46) 3. Rajiv Kumar (Roll No. 52) 4. Sahil Grover (Roll No. 58) UNDER THE GUIDANCE OF Dr. Sheeba Kapil 2011-12 IIFT, DELHI Academic Research Paper
  • Tata JLR Case Discussion 1 Contents 1   Pre-Merger Due Diligence ...................................................................... 1   1.1   Due Diligence ...............................................................................................1   1.2   Company Profile ...........................................................................................2   1.3   Rationale Behind the Merger ........................................................................3   1.4   Synergies......................................................................................................5   2   Post Merger Strategy .............................................................................. 6   2.1   Post Merger Initiatives ..................................................................................6   3   Financial Due Diligence.......................................................................... 7   3.1   Financial Ascertainment ...............................................................................7   3.2   Bank Consortium Funding the Merger..........................................................7   3.3   Mode of Payment .........................................................................................8   4   Critical Self Assessment ........................................................................ 9   5   Appendix................................................................................................ 10   5.1   Sources ......................................................................................................10  Academic Research Paper
  • Tata JLR Case Discussion1 Pre-Merger Due Diligence1.1 Due DiligenceTata Motors stood to gain on several fronts from the deal.• The acquisition would help the company acquire a global footprint and enter the high-end premier segment of the global automobile market• Tata also got two advance design studios and technology as part of the deal – the company gets access to latest technology which would also allow Tata to improve their core products in India, for eg, Indica and Safari suffered from internal noise and vibration problems• This deal provided Tata an instant recognition and credibility across globe which would otherwise would have taken yearsPrivileged & Confidential. Page 1
  • Tata JLR Case Discussion1.2 Company ProfileTATA MOTORSTata Motors, part of the Tata Group, one of the largest business conglomerates in Indiawith a presence in over 80 countries and a work force of around 290,000 people. TataMotors is the largest automobile company in India with gross revenue of Rs.330.93billion in 2007-08. Tata Motors is also the second largest bus manufacturer and thefourth largest truck manufacturer in the world. Tata Motors unveiled the cheapest car inthe world, the Tata Nano, priced at around US$ 2,500, in early 2008.Tata Motors Limited, formerly known as TELCO (TATA Engineering and LocomotiveCompany), is a multinational corporation headquartered in Mumbai, India. It is Indiaslargest passenger automobile and commercial vehicle manufacturing company and amidsized player on the world market with 0.81% market share in 2007 according toOICA data. Part of the Tata Group, and one of the worlds largest manufacturers ofcommercial vehicles. The OICA ranked it as the worlds 19th largest automaker, basedon figures for 2007. as well as the second largest automaker of commercial vehicles.Established in 1945, when the company began manufacturing locomotives, today it isthe leader in commercial vehicles in each segment, and among the top three inpassenger vehicles with winning products in the compact, midsize car and utility vehiclesegments. The company is the world’s fourth largest truck manufacturer, and theworld’s second largest bus manufacturer. Tata Motors has its manufacturing base inJamshedpur, Pantnagar, Lucknow, Ahmedabad and Pune in India as well asmanufacturing facilities in Argentina, South Africa and Thailand.The company manufactured its first commercial vehicle in 1954 in collaboration withDaimler-Benz AG, which ended in 1969. Tata Motors is a dual-listed company traded onboth the New York Stock Exchange and the Indian Stock Exchange (where it is acomponent of the Sensex index). Tata Motors was listed on the NYSE in 2004, and in2005 it was ranked among the top 10 corporations in India with an annual revenueexceeding INR 320 billion. In 2004, it bought Daewoos truck manufacturing unit, nowknown as Tata Daewoo Commercial Vehicle, in South Korea. It also, acquired a 21%stake in Hispano Carrocera SA, giving it controlling rights in the company. In March2008, it finalised a deal with Ford Motor Company to acquire their British Jaguar LandRover (JLR) business, which also includes the Rover, Daimler and Lanchester brandnames. and the purchase was completed on 2 June 2008.Privileged & Confidential. Page 2
  • Tata JLR Case DiscussionJaguar Land RoverJLR was a part of Fords Premier Automotive Group (PAG) and were considered to beBritish icons. Jaguar was involved in the manufacture of high-end luxury cars, whileLand Rover manufactured high-end SUVs.Jaguar Cars Ltd. ( better known simply as Jaguar) is an automaker from England,United Kingdom that manufactures luxury and executive motor car.Sir William Lyons founded jaguar as the Swallow Sidecar Company in 1922, originallymaking motorcycle sidecars before switching to passenger cars. The name waschanged to Jaguar after the second world war due to the unfavourable connotations ofthe SS initials. Jaguar cars are designed in an engineering centre at their headquartersin Coventry, England and are manufactured in one of three English Jaguar plants;Castle Bromwich in Birmingham, Halewood near Liverpool and Gaydon in Oxfordshire.Following several subsequent changes of ownership since the 1960s, Jaguar was listedon the London Stock Exchange and became a constituent of the FTSE 100 Index,which1.3 Rationale Behind the MergerThe acquisition of Jaguar Land Rover enabled Tata to acquire internationallyrecognized brands with a strong heritage and global presence, and increases TataMotors product and market diversity. JLR also will help Tata Motors expand anddiversify their current international sales market, allowing them to reduce reliance on theIndian market.Land Rover provides Tata Motors an opportunity to broaden their existing portfolio ofUV, SUV and crossover offerings. Land Rover’s products in the all-terrain vehiclesegment are complementary to Tata’s products in terms of features, technology andprice positioning and as such, allow them to offer a wide range of vehicles that satisfiesvarious consumer needs. Additionally, Jaguar’s premium product offerings will provideTata with immediate entry into the luxury performance car segment.The acquisition of Jaguar Land Rover also enables Tata to leverage Jaguar LandRover’s technology and engineering expertise. For example, Jaguar Land Rover’stechnological capabilities in petrol engines, Four Wheel Drive technology andAluminium BIW (Body in White) technology will help Tata further develop andstrengthen their existing engineering capabilities. Through the acquisition, Tata alsogain research and development capabilities of Jaguar Land Rover’s strong engineeringworkforce and its two advanced design centers in the UKPrivileged & Confidential. Page 3
  • Tata JLR Case DiscussionTo summarize, some of the reasons behind the merger are as follows:1. Immediate entry to the luxury performance car and premium all-terrain vehicle segments2. An improvement in the global market position through a combination of resources and strengths3. Strengthening of technological and product development/ innovation capabilities to address changing market trends4. Sharing of best practices in manufacturing and quality assurance systems and processes5. Enhanced human capital and managerial talent6. Potential operational synergiesPrivileged & Confidential. Page 4
  • Tata JLR Case Discussion1.4 SynergiesSome of the Synergies that exist are listed in the figures below:Privileged & Confidential. Page 5
  • Tata JLR Case Discussion2 Post Merger Strategy2.1 Post Merger InitiativesPost Merger, several cost rationalization 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 days5. Labor Actions a. Voluntary retirement to 600 employees b. Agency staff reduced by 800 c. Offered leaves to 300 workers of Bromwhich and solihull plant d. Additional 450 job cuts including 300 managers6. Agreement with Unions to implement pay freeze and longer working hours (equivalent to approximately 20% reduction in labor costs.)7. Engineering and capital spending efficiencies8. Fixed marketing and selling costs reduced in line with sales volume9. Reduction in all other non-personnel related overhead costsPrivileged & Confidential. Page 6
  • Tata JLR Case Discussion3 Financial Due Diligence3.1 Financial AscertainmentOn June 2, 2008, Tata Motors completed the acquisition of Jaguar Land Rover fromFord for a purchase consideration of US$ 2,300 million on cash free and debt freebasis. Jaguar Land Rover Limited, Tata Motors indirect subsidiary, paid the purchaseconsideration. As part of the acquisition, the Company acquired the global businessesrelating to Jaguar Land Rover including three vehicle manufacturing facilities, oneveneer production facility, two advanced design centers, 26 national sales companies,intellectual property rights (including perpetual royalty free licenses), and brands andtrade marks.The purchase consideration of US$ 2,300 million, on cash free and debt free basis, paidby Jaguar Land Rover Limited was financed through a capital contribution of US$ 400million and a portion of the proceeds from a US$ 3,000 million short term bridge loanfacility extended to Jaguar Land Rover Limited. The purchase consideration was basedon an agreed level of working capital as defined in the sale and purchase agreemententered into with Ford. In addition, US$ 100 million was paid by TML Holdings PteLimited towards fees and other acquisition expenses consisting of legal and advisoryfees, due-diligence and related expenses, structuring fees, underwriters fees and otherexpenses in relation to the short term bridge loan, and other acquisition relatedexpenses.A net cash position of US$ 93 million was estimated for Jaguar Land Rover as at thedate of acquisition. This amount represents additional net cash over the purchaseconsideration basis and was paid additionally by Jaguar Land Rover Limited. The samewas financed out of the proceeds of the short term bridge loan.In addition, a final adjustment relating to the actual cash, debt and working capitalposition (as defined in the sale and purchase agreement) of Jaguar Land Rover on thedate of the acquisition, based on a final completion statement of Jaguar Land Roveragreed between Jaguar Land Rover Limited and Ford, of US$ 131 million is payable byJaguar Land Rover Limited to Ford. This represents additional net working capital/ cashavailable with Jaguar Land Rover over the agreed levels.3.2 Bank Consortium Funding the MergerThe US$ 3,000 million short-term bridge loan facility extended to Jaguar Land RoverLimited in connection with the acquisition of Jaguar Land Rover was pursuant to a creditPrivileged & Confidential. Page 7
  • Tata JLR Case Discussionfacility agreement dated March 13, 2008 with an initial group of arrangers including thefollowing:• Bank of Tokyo-Mitsubishi UFJ Limited• Citigroup Global Markets Asia Limited• ING Bank N.V., Singapore Branch• J.P. Morgan Securities (Asia Pacific) Limited• Mizuho Corporate Bank Limited• Standard Chartered Bank• State Bank of India• BNP Paribas, Singapore BranchTML and TML Holdings Pte Limited were also obligors to the aforementioned creditfacility agreement, and TML provided a guarantee for the facility. Citicorp InternationalLimited acted as the Facility Agent.3.3 Mode of PaymentJaguar Land Rover Limited utilized US$ 1,900 million of the aforementioned Short TermBridge Loan towards part payment of the purchase consideration for the acquisition ofJaguar Land Rover from Ford on cash free and debt free basis.In addition, a net cash position of US$ 93 million, representing additional net cash overthe purchase consideration basis, was estimated for Jaguar Land Rover as at the dateof the acquisition. Jaguar Land Rover Limited paid this amount additionally out of theproceeds of the short term bridge loan.Further, US$ 700 million from the proceeds from the short term bridge loan was utilizedby Jaguar Land Rover Limited for a short term working capital loan to its subsidiary,Land Rover.The balance proceeds from the Short Term Bridge Loan are intended to be utilized byJaguar Land Rover Limited towards the ongoing operational/ contingency requirementsof Jaguar Land Rover.Privileged & Confidential. Page 8
  • Tata JLR Case Discussion4 Critical Self AssessmentAccording to us, the brand JLR has not fallen into the wrong hands, looking at TataMotors legacy, the company is remolding the future of these two international luxurybrands. The sales of Jaguar have picked up in India and Tata Motors has beensuccessful in reinvigorating the luxury car segment in India.Tata Motors set-up an integration committee with senior executives from the JLR andTata Motors, to set milestones and long-term goals for the acquired entities – thisstrategy has paid off since sales of Jaguar has picked up and so has the image of TataMotors post the merger and the Nano launch.One of the major problems for Tata Motors could be the slowing down of the Europeanand US automobile markets. We expect that the company would address this issue byconcentrating on countries like Russia, China, India, and the Middle East.The figure below shows, the Tata Motors advantage for becoming a world classautomotive company:The companies investment plans, new designs with a scope for alternate energy usage,the new target markets and retaining the best both production units and talents, hiringfresh talents from around the world is definitely going to make the company gain astrong foothold globally.Privileged & Confidential. Page 9
  • Tata JLR Case Discussion5 Appendix5.1 SourcesMAGAZINES:1. Business world (March 31, 2008, April 20, 2009)2. Business Today (April 5, 2008)3. India Today (April 18, 2009)4. 4p’s (April, 2008)5. Business & Economy (April, 2008)NEWSPAPERS:1. Times of India2. Economics Times3. The TelegraphWEBSITES:1. Wikipedia.com2. ICICIdirect.com3. Mergersindia.com4. Mergerdigest.com5. Deustchbank.com6. ICMR.com7. Businessstandard.com8. Tatamotors.com9. Jaguarlandrover.comPrivileged & Confidential. Page 10