Land Rover and Jaguar, ToAcquire or not to Acquire? ENRIQUE J. MARTINEZ
Presentation OutlineRecommendationExternal EnvironmentInternal EnvironmentJustifications Technological Advancements Diversification of Markets Synergy with other group firms Completing the product portfolioCritical Success Factors for the Success of the Acquisition - Managing the Current Level of Debt - Manage the Unions in both companies - Leverage existing distributor network and use with own - Prepare to undertake global competition - Upgrade corporate culture
RecommendationTata Must Acquire Land Rover and Jaguar.
What are the External Environment factors to Consider?India- Relaxation of trade barriers new multinational competitors competing for the local market.- Government has approved up to 400% capitalization FDI investment for Indian Companies- India’s economy is still vulnerable to volatility.- There is an overall boom of the Indian Economy- Indian companies are increasing outside direct investments.Asia- Generally Asia has been propelling the world’s growth in the 1990’s and 2000’s- New markets and increasing affluence of its populationEurope and North America- Slow growth but very mature markets
What are the Three main company thrusts to Consider?- The Thrust of Ratan Tata for an even More Globalized Tata Group though market diversification and entrance to other niches.- The thrust to focus on core industries to maximize profitability and market share.- The need for inter company cooperation and synergy.
Justifications for Acquiring Land Rover and Jaguar1. Technological advances2. Diversification of markets3. Synergy with Other Group Firms4. Completing the Product Portfolio
1. Technological Advances The transfer of technology eventually helps the Transfer of company’s products compete Technology in the local and global markets. Technology gets used in Tata Motors Tata gains the following 1. Improved manufacturing across different product lines 2. Increased competitiveness in design and manufacturing
2. Diversification of MarketsScenario if Land Rover and Jaguaris not Acquired Company Saves This contributes Tata Motors bears Failure of the Thrust money in the to the failure in undiversified for Market Short Run diversification economic risk DiversificationScenario if Land Rover and Jaguaris gets acquired Success of theCompany experiences Company is able to use Tata Motors risk gets Company’s Thrust Short term Cash Jaguar and Land Rover diversified . for MarketOutflow and increased to enter North International market debt American Market Knowledge Acquired Diversification
3. Synergy with Other Tata Groups Lower cost of Steel (primary component for vehicle Tata Steel production)Contribution to More competitiveEconomies of Scale spare parts costing, expertise in Jaguar and Land durability, more Rover Tata Motors efficient operations Global Network, Technology Reinforced credentials by , Aesthetic designs for association with top hotels. diversified markets Mutual Brand Image Tata Hotels Effects through association
4. Completing the Product Portfolio Tata Motors is Currently in passenger cars, light trucks , medium and heavy trucks as well as buses. For the passenger car segment, Tata Motors serves the low income to middle income market It does not have an existing luxury brand to compete with foreign counterparts such as Lexus, BMW, Mercedes Benz etc. Creating a Luxury Brand from scratch is difficult and takes years. India DOES NOT HAVE a good reputation for luxury car brands The most practical solution is to acquire well established brands to tap the luxury segment. A FAST GROWING segment in Asia.
Critical Success Factors for effectively Managing Land Rover and Jaguar1. To be able to find a source of financing for the 1-2 Billion Dollar acquisition of Land Rover and Jaguar.2. To be able to integrate Land Rover and Jaguar to Tata’s Global Strategy, debt liabilities of the mentioned companies must be managed.3. Acquiring Jaguar involves dealing with its union, Tata must be able to handle them and manage these future employees productively.4. Tata must be able to leverage on the Existing distribution network as well as manage foreign competition5. Corporate culture must be addressed to be able to execute this acquisition as part of the company’s global strategy.
1. Financing the Acquisition Since Tata Motors corporation has a negative cash balance (2.321 Billion Rupees in 2007) alternatives must come from other business units. The financing will mainly come from the cash flow of Tata Steel as it has 96.950 Billion Rupees in cash flow in 2007. This translate to an cost of 43.16-86.32 Billion Rupees. External financing would be recommended to the level where credit rating is not compromised.* (Exhibit 6 Indian Hotel 2007 Revenue in Rupees divided by Exhibit 7’s Indian Hotel Revenue in 2007 Dollars ) Given the conversion rate of 43.16* dollars per rupee and the cost of the acquisition is 1-2 Billion Dollars,
2. Managing the Liabilities of Jaguar and Land Rover Tata Motors Acquires Jaguar and Land Rover Need: Jaguar must be operated Profitably Need: Land Rover profitability must improve Consider restructuring the loans To enable Jaguar to be profitable though less Enable Land Rover to invest in capital expenditures interest payments that will ultimately improve profitability Sustain the Company’s GrowthStabilize the debt of Jaguar and continuously work Land Rover could now optimize its debt structure. on its profitability To give maximum shareholder value
4. Managing the Labor Union (Jaguar)Jaguar’s Existing employees are an asset to the firm, because of their skill base andexperience. However, before taking over the company mutually beneficialagreements must be first established. Establish • Reassure them of Job Security Communication • Gain the Trust of the Union with the Union • Establish Productivity goals Establish Goals for and policies the Union • Inform them about the situation of the firm. • Consult with Union and set an Reward and accepted performance reward scheme Controls • Reward and impose sanctions as necessary
5. Leverage Existing Distribution Networks and Manage CompetitionScenario if Land Rover and Jaguar is Not Acquired Presence in North Presence In Europe Presence In Asia AmericaPresent No No Yes- Concentrated in IndiaCost of Large. Large ModerateBuilding Investment in Investment in Geographical accessnetwork Distribution Distribution and market structure Infrastructure and Infrastructure and is nearer to India growing own luxury growing own luxury vehicle brands vehicle brandImplication Very difficult to grow Very difficult to grow Market growth organically as the organically as the potential is not company needs new company needs new maximized manufacturing manufacturing technology and updated technology and updated designs designs.
Leverage Existing Distribution Networks and Manage CompetitionScenario if Land Rover and Jaguar is Acquired Presence in North Presence In Europe Presence In Asia AmericaPresent? Yes Yes Yes and easier expansionCost of Building Moderate. Moderate. Moderate.network through Existing distributor Existing distributor Land Rover andorganic growth network is present. network is present. Jaguar needs to be Improvements still Improvements still aggressively needed. No need for needed. No need for marketed to Asia, but extensive marketing extensive marketing the two brands have budget as brand budget as brand already good brand reputation is reputation is recall- market established established opportunities are tapped.Implication A good entry strategy A good entry strategy Tata is able to exploit for Tata in North for Tata in Europe Asia’s emergence. America.
6. Corporate Mind Set Must be Addressed A global cultural mindset must be adapted by the company. This ensures alignment with the vision of the chairman to the execution of the strategy. Current Mindset Rank and File Staff of Results to conflict with Senior management Is Risk Execution of Global Chairman’s Ratan Tata’s Averse. Extremely Strategy is compromised Global Mindset Conservative Change to Global Mindset Overall Global Mindset is Minimal Conflict with Excellent execution of undertaken with a balance Chairman’s Plan of Action Tata’s Global Strategy for managing risks