1. 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
2. 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
3. Tata JLR Case Discussion
1 Pre-Merger Due Diligence
1.1 Due Diligence
Tata 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 years
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4. Tata JLR Case Discussion
1.2 Company Profile
TATA MOTORS
Tata Motors, part of the Tata Group, one of the largest business conglomerates in India
with a presence in over 80 countries and a work force of around 290,000 people. Tata
Motors is the largest automobile company in India with gross revenue of Rs.330.93
billion in 2007-08. Tata Motors is also the second largest bus manufacturer and the
fourth largest truck manufacturer in the world. Tata Motors unveiled the cheapest car in
the world, the Tata Nano, priced at around US$ 2,500, in early 2008.
Tata Motors Limited, formerly known as TELCO (TATA Engineering and Locomotive
Company), is a multinational corporation headquartered in Mumbai, India. It is India's
largest passenger automobile and commercial vehicle manufacturing company and a
midsized player on the world market with 0.81% market share in 2007 according to
OICA data. Part of the Tata Group, and one of the world's largest manufacturers of
commercial vehicles. The OICA ranked it as the world's 19th largest automaker, based
on figures for 2007. as well as the second largest automaker of commercial vehicles.
Established in 1945, when the company began manufacturing locomotives, today 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. Tata Motors has its manufacturing base in
Jamshedpur, Pantnagar, Lucknow, Ahmedabad and Pune in India as well as
manufacturing facilities in Argentina, South Africa and Thailand.
The company manufactured its first commercial vehicle in 1954 in collaboration with
Daimler-Benz AG, which ended in 1969. Tata Motors is a dual-listed company traded on
both the New York Stock Exchange and the Indian Stock Exchange (where it is a
component of the Sensex index). Tata Motors was listed on the NYSE in 2004, and in
2005 it was ranked among the top 10 corporations in India with an annual revenue
exceeding INR 320 billion. In 2004, it bought Daewoo's truck manufacturing unit, now
known 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 March
2008, it finalised a deal with Ford Motor Company to acquire their British Jaguar Land
Rover (JLR) business, which also includes the Rover, Daimler and Lanchester brand
names. and the purchase was completed on 2 June 2008.
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5. Tata JLR Case Discussion
Jaguar Land Rover
JLR was a part of Ford's Premier Automotive Group (PAG) and were considered to be
British icons. Jaguar was involved in the manufacture of high-end luxury cars, while
Land 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, originally
making motorcycle sidecars before switching to passenger cars. The name was
changed to Jaguar after the second world war due to the unfavourable connotations of
the SS initials. Jaguar cars are designed in an engineering centre at their headquarters
in 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 listed
on the London Stock Exchange and became a constituent of the FTSE 100 Index,
which
1.3 Rationale Behind the Merger
The acquisition of Jaguar Land Rover enabled Tata to acquire internationally
recognized brands with a strong heritage and global presence, and increases Tata
Motors product and market diversity. JLR also will help Tata Motors expand and
diversify their current international sales market, allowing them to reduce reliance on the
Indian market.
Land Rover provides Tata Motors an opportunity to broaden their existing portfolio of
UV, SUV and crossover offerings. Land Rover’s products in the all-terrain vehicle
segment are complementary to Tata’s products in terms of features, technology and
price positioning and as such, allow them to offer a wide range of vehicles that satisfies
various consumer needs. Additionally, Jaguar’s premium product offerings will provide
Tata with immediate entry into the luxury performance car segment.
The acquisition of Jaguar Land Rover also enables Tata to leverage Jaguar Land
Rover’s technology and engineering expertise. For example, Jaguar Land Rover’s
technological capabilities in petrol engines, Four Wheel Drive technology and
Aluminium BIW (Body in White) technology will help Tata further develop and
strengthen their existing engineering capabilities. Through the acquisition, Tata also
gain research and development capabilities of Jaguar Land Rover’s strong engineering
workforce and its two advanced design centers in the UK
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6. Tata JLR Case Discussion
To summarize, some of the reasons behind the merger are as follows:
1. Immediate entry to the luxury performance car and premium all-terrain vehicle
segments
2. An improvement in the global market position through a combination of resources
and strengths
3. Strengthening of technological and product development/ innovation capabilities to
address changing market trends
4. Sharing of best practices in manufacturing and quality assurance systems and
processes
5. Enhanced human capital and managerial talent
6. Potential operational synergies
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7. Tata JLR Case Discussion
1.4 Synergies
Some of the Synergies that exist are listed in the figures below:
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8. Tata JLR Case Discussion
2 Post Merger Strategy
2.1 Post Merger Initiatives
Post 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
days
5. 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 managers
6. Agreement with Unions to implement pay freeze and longer working hours
(equivalent to approximately 20% reduction in labor costs.)
7. Engineering and capital spending efficiencies
8. Fixed marketing and selling costs reduced in line with sales volume
9. Reduction in all other non-personnel related overhead costs
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9. Tata JLR Case Discussion
3 Financial Due Diligence
3.1 Financial Ascertainment
On June 2, 2008, Tata Motors completed the acquisition of Jaguar Land Rover from
Ford for a purchase consideration of US$ 2,300 million on cash free and debt free
basis. Jaguar Land Rover Limited, Tata Motors indirect subsidiary, paid the purchase
consideration. As part of the acquisition, the Company acquired the global businesses
relating to Jaguar Land Rover including three vehicle manufacturing facilities, one
veneer production facility, two advanced design centers, 26 national sales companies,
intellectual property rights (including perpetual royalty free licenses), and brands and
trade marks.
The purchase consideration of US$ 2,300 million, on cash free and debt free basis, paid
by Jaguar Land Rover Limited was financed through a capital contribution of US$ 400
million and a portion of the proceeds from a US$ 3,000 million short term bridge loan
facility extended to Jaguar Land Rover Limited. The purchase consideration was based
on an agreed level of working capital as defined in the sale and purchase agreement
entered into with Ford. In addition, US$ 100 million was paid by TML Holdings Pte
Limited towards fees and other acquisition expenses consisting of legal and advisory
fees, due-diligence and related expenses, structuring fees, underwriters fees and other
expenses in relation to the short term bridge loan, and other acquisition related
expenses.
A net cash position of US$ 93 million was estimated for Jaguar Land Rover as at the
date of acquisition. This amount represents additional net cash over the purchase
consideration basis and was paid additionally by Jaguar Land Rover Limited. The same
was financed out of the proceeds of the short term bridge loan.
In addition, a final adjustment relating to the actual cash, debt and working capital
position (as defined in the sale and purchase agreement) of Jaguar Land Rover on the
date of the acquisition, based on a final completion statement of Jaguar Land Rover
agreed between Jaguar Land Rover Limited and Ford, of US$ 131 million is payable by
Jaguar Land Rover Limited to Ford. This represents additional net working capital/ cash
available with Jaguar Land Rover over the agreed levels.
3.2 Bank Consortium Funding the Merger
The US$ 3,000 million short-term bridge loan facility extended to Jaguar Land Rover
Limited in connection with the acquisition of Jaguar Land Rover was pursuant to a credit
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10. Tata JLR Case Discussion
facility agreement dated March 13, 2008 with an initial group of arrangers including the
following:
• 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 Branch
TML and TML Holdings Pte Limited were also obligors to the aforementioned credit
facility agreement, and TML provided a guarantee for the facility. Citicorp International
Limited acted as the Facility Agent.
3.3 Mode of Payment
Jaguar Land Rover Limited utilized US$ 1,900 million of the aforementioned Short Term
Bridge Loan towards part payment of the purchase consideration for the acquisition of
Jaguar 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 over
the purchase consideration basis, was estimated for Jaguar Land Rover as at the date
of the acquisition. Jaguar Land Rover Limited paid this amount additionally out of the
proceeds of the short term bridge loan.
Further, US$ 700 million from the proceeds from the short term bridge loan was utilized
by 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 by
Jaguar Land Rover Limited towards the ongoing operational/ contingency requirements
of Jaguar Land Rover.
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11. Tata JLR Case Discussion
4 Critical Self Assessment
According to us, the brand JLR has not fallen into the wrong hands, looking at Tata
Motors legacy, the company is remolding the future of these two international luxury
brands. The sales of Jaguar have picked up in India and Tata Motors has been
successful in reinvigorating the luxury car segment in India.
Tata Motors set-up an integration committee with senior executives from the JLR and
Tata Motors, to set milestones and long-term goals for the acquired entities – this
strategy has paid off since sales of Jaguar has picked up and so has the image of Tata
Motors post the merger and the Nano launch.
One of the major problems for Tata Motors could be the slowing down of the European
and US automobile markets. We expect that the company would address this issue by
concentrating on countries like Russia, China, India, and the Middle East.
The figure below shows, the Tata Motors advantage for becoming a world class
automotive 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, hiring
fresh talents from around the world is definitely going to make the company gain a
strong foothold globally.
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12. Tata JLR Case Discussion
5 Appendix
5.1 Sources
MAGAZINES:
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 India
2. Economics Times
3. The Telegraph
WEBSITES:
1. Wikipedia.com
2. ICICIdirect.com
3. Mergersindia.com
4. Mergerdigest.com
5. Deustchbank.com
6. ICMR.com
7. Businessstandard.com
8. Tatamotors.com
9. Jaguarlandrover.com
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