The sale of Jaguar and Landover was initiated by their former owner Ford. Ford acquired Jaguar for $2.5 billion in 1989 and it acquired Landover from BMW in 2000 for $2.7 billion, the U.S auto major put both of them on sale in June 2008. Tata Motors Ltd bought Jaguar Land Rover (JLR) for $2.3 billion (Rs. 10,258 crore today). Various factors ignited the sale of Jaguar and Landover by ford and bidding for its purchase by Tata, some of them are:Cumulative Losses for many years: Ford made losses of 12.6 billion in the year 2006, the biggest ever in its 103 year history, most of it was a result of bad performance of Jaguar, Landover however was performing steadily though not at its best, Landover was driven by a record sale of 2.26 lakh vehicles in the year 2007, ford announced for a combined sale of both Jaguar and Landover. The reason for this strategy was that ford wanted to get rid of Jaguar on one hand which had been making losses and realize a good amount by offering Landover for sale also which would not have been possible by offering Jaguar alone.Goodtime to get hold of two unique brands for Tata motors: Automobile industry was well affected by the economic downturn; the market was not on its flow hence it was a good time for Tata motors to get hold of Jaguar and Landover at a reasonable price. Global footprint: Tata got an enormous opportunity to penetrate global market, which in the long run would act as a catalyst to boost revenues and create brand value. It would also help in diversifying its revenue generating sources.Long term economies of scale: Acquiring JLR would help Tata for component sourcing, design services and low cost engineering which would in the long run reduce the cost of production and facilitate in increasing the bottom-line.Broaden the brand portfolio: Variety of performance and luxury vehicles, Landover being a natural fit for TML’s SUV segment.Exploring intangible opportunities: Jaguar and Landover are distinguished brands with good research and development behind them. Tata got two advance design studios and technology. Recognition to own the cheapest car as well as most luxurious cars: Acquiring JLR would give Tata recognition in the market of being the owner of the cheapest car nano as well as premium cars like Jaguar SVX.Cost competitive advantage: Corus being the major supplier of automotive high grade steel to JLR and other automobile industries in USA and Europe, acquiring JLR would result in a cost synergy for Tata motors.
12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar.August 2007 - Major bidders are identified Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management India’s Tata Motors and M&M arrive as top bidders ($ 2.05b & $ 1.9b) 03/01/2008 – Ford announces Tatas as the preferred bidders 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors. 02/06/2008 – The acquisition is complete
Tata Motors raised $3 billion (about Rs 12,000 crore)through bridge loans for 15 months from a clutch of banks, including JP Morgan, Citigroup, and State Bank of India. Company charted out plans to raised Rs 7,200 crore, via Rights Issue. The proceeds of which were be used to part-finance the JLR deal of Rs 9,228.75 cr..The rights issue raised the equity capital of Tata Motors by30-35 per cent by March 2009. The company also planned toraise $500-600 million through an issue of securitiesin the foreign markets.
Financing the Deal: Just before acquiring JLR, Tata had acquired Corus and moreover Tata motors had undergone huge capital expenditure to bring nano into the market and hence financing the acquisition was a major concern for Tata motors. Investor Disagreement: Investors were not in favour of the decision of acquiring JLR at that time, both jaguar and Landover were loss making units and automobile industry at that point of time was under pressure of downturn, in fact Tata motors itself had gone in for rationalization and retrenchment strategies. Investors believed that the balance sheet of Tata motors was not strong enough to absorb more loans. Unfavourable Economic Conditions Especially In The Target Market: During the acquisition the worldwide car sales were down by 5%, the automobile industries over the world were rationalizing to conserve funds, moreover difficult economic conditions prevailed in the key markets comprising USA and Europe, which were the major factors influencing the earnings volatility. JLR could not generate the funds for working capital, requiring Tata Motors to pump additional funds to keep the operations going. Debt Burden: To finance the acquisition Tata motors raised a bridge loan of 3 billion through consortium of banks by the end of 2009. Tata motors had yet to pay 2 billion towards the bridge loan; moreover it required additional funds and that too quickly to keep the operations running. Fall In Share Price: Tata motor’s share prices dropped in the market after acquisition of JLR because of the investor perception that it was not the right time to invest in that acquisition, when Tata had recently undergone huge capital expenditure for the NANO project.
Tata motors and jaguar land rover
The sale of Jaguar and Landover was initiated by their former owner Ford Ford acquired Jaguar for $2.5 billion in 1989 & it acquired Landover from BMW in 2000 for $2.7 billion The U.S auto major put both of them on sale in June 2008 Tata Motors Ltd bought Jaguar Land Rover (JLR) for $2.3 billion (Rs. 10,258 crore today) on a cash free debt free basis
Ford’s Cumulative losses for many years Good time to get hold two unique brands for Tata Global Footprint Long term economies of scale Broaden the brand portfolio Exploring intangible opportunities Recognition to own the cheapest and the most luxurious cars Cost Competitive advantage
After acquisition, Tata Motors found itself saddled with a debt of Rs. 21,900 crore Recession brought down the value of Tata Motors to Rs. 6,503.2 crore Introduction of newer, more fuel-efficient and contemporary models The company posted a 100-fold jump in profit in the three months The debt-to-equity ratio is down to 1.6 times at the consolidated level from 4.5 times Share prices rose to a respectable Rs. 1,302
100% stake in Jaguar & Land Rover Business 3 Plants in UK 2 Advanced Design & Engineering Centers 26 National Sales company Intellectual Property Rights Capital Allowance Support from Ford Motor Credit Pension Contributed by Ford
1990- Ford bought Jaguar for $2.5bn 1994- Rover Group is taken over by BMW 2000- Sold to Ford Motors for $2.75 bn 2008- Tatabought Jaguar & LandRover from Ford for $2.50bn
Tata Motors raised $3 billion through bridge loans for 15 months from different banks Company charted out plans to raise Rs 7,200 crore, via Rights Issue • Ordinary Equity Shares • A-Class Equity Shares • 5 year 0.5% Convertible Preference Shares The rights issue raised the equity capital of Tata Motors by 30-35 per cent by March 2009. The company also planned to raise $500-600 million through an issue of securities in the foreign markets.
Financing the Deal • Acquisition of Corus & investment in Nano Investor Disagreement • Jaguar & Landrover were loss making units Unfavorable Economic Conditions • Worldwide car sales were down by 5% Debt Burden • Bridge loan of $3bn Fall in Share Price • Investor perception of wrong timing to invest