Post on 10-Apr-2018
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Team 1
Venkata Ramya Kolluru (9058)
Sri Prasanna M (9111)
TATA Motors - Jaguar & Land Rover
Acquisition Expert plan
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Introduction
Financing the acquisition
SWOT
Challenges to TATA
Reasons to acquire
Why should the deal work?
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Belongs to TATA group 150 year old
Previously Tata Engineering and Locomotive company, Telco
Listed on the NewYork stock exchange in 2004
Tata Motors is the Indias largest automobile company
It is the leader in commercial vehicles and the second largest in
passenger vehicles
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A statement of ultra luxury
Rarely advertised
Fords Formula One entry since 1990s
Known for superior off-road performance
Used by military for projects and expeditions
Safe but less reliable
Land Rover has a presence in 147 countries, Jaguar has a
presence in more than 80 countries
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52%
27%
11%
10%
EuropeUS
Asia pacific
ROW
Source: Annual reports, Emkay research
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TATA Motors
Revenue $7.2 billion in 2006-07
Ford
(in Rs. cr) Mar '05 Mar '06 Mar '07
Net sales 17,199.17 20,088.63 26,664.25
Reported net profit 1,236.95 1,528.88 1,913.46Debt Equity Ratio 0.61 0.53 0.59
Source: moneycontrol.com
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( In milliondollars)
2007 2006 2005 2004
revenues 172,455 160,065 176835 166040
Net Income (2,723) (12,613) (1,440) (3,038)
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711/10/2010
Source: IBS Research center report
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Source: IBS Research center report
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911/10/2010 Source: IBS Research center report
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3 ways:
Existing Cash reserves
Have cash pile of over Rs.6000 crores ($1.2 bn) and generated free cash
of over Rs.1000 crores during FY07 Debt (loans from banks, issuing debt securities)
Low interest rates (5%) are available because of recession
Debt to equity ratio is low 0.59 (can raise more funds). Low leverage of the
auto business provides funding flexibility
Equity (issuing of shares)
Being a well established company, funds can be raised both in domestic
and overseas market as the company is performing well.
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TATAs are maintaining a debt to equity ratio around 0.57 for
the last 4 years, we assume that they would desire to maintain
same ratio in future also.
It can go for financing: $ 1.8 bn of equity
$ 1.026 bn of debt
Remaining amount through cash reserves
If the company is not able to raise equity before acquisition it
can go for short term debt (bridge loan), which can be repaidwith equity raised in latter part of acquisition.
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Strengths
Tatas strong management
capability
Strong monetary base to invest
Weakness
Jaguars declining sales
record
Inexperience in handling
such luxury brands
Opportunities
Support from Ford in terms
of Technology, engine, IT,
Accounting Adding up of luxury brands in
the product line
Access to European market
Threats
Strong presence of
competitors like Mercedes,
B
MW, Lexus
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Marketing the product against stiff competition.
TATAs presence only in low and mid car segments.
TATAs stand for: Reliability, value for money Trust etc. How do
they keep up with JLR? Acquisition during recession in US and Europe which contributes
88% of revenues of JLR.
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Long term Strategic commitment to automotive sector
Reduce company's dependence on the Indian market, which
accounts for 90% of its sales Opportunity to venture into luxury car market.
Increased business diversity across markets and products
Land rover provides a natural fit for TMLs SUV segment
Jaguar offers a range of performance/ high-Tech vehicles tobroaden the portfolio
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Ensuring global presence.
Reduced Interest rates in India due to recession.
Great opportunities in US and UK market after recession.
Rising incomes and brand consciousness in India also. JLR brings with it advanced R&D facilities and qualified
manpower which will assist TML in development and patenting
of new technology
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Ford Tata Motors Losses at Jaguar(2006): $715 Mn
(Jaguar a dog in BCG matrix)
Opportunity to participate in 2 fast
growing auto segments & act on
strategy of internationalization
Ford fails to bring down productioncosts
Land rover: natural fit for TMLs SUVsegment
Jaguar: luxury vehicles broaden the
brand portfolio
Combines J+LR Benefits from component sourcing,
design services and low costengineering
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0
Source: www.businessweek.com/globalbiz/cantatarevupjaguar
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100% stake in Jaguar &
land Rover Business
TAMO has acquired the business & initially they will be
operated independently of the partner.
3 Plants in UK These are well invested plants
2 advanced design &
engineering center
4-5000 engineers engaged in testing ,prototype design
& powertrainEngineering , development & integration
26 National sales company Both existing national sales companies of jaguar/land
rover & also those that are carved out of current Fordoperation
Intellectual property rights This covers all key technologies to be transferred to JLR &
perpetual royalty free license on technologies sharedwith Ford
Capital Allowance A minimum guaranteed amount of $1.1 bn which willhelp managing in Tax going forward
Support from Ford Motor
Credit
Ford Motor Credit will continue to support the sales of
JLR for around next 12 months
Pension Contributed by
Ford
Ford will contribute $ 600 mn of the Pension Fund
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Tatas will keep JLR separate
Marketing and Technology
Luxury is where the money is
The deal will not be too expensive Have previous experience of acquisition of Tetley, Tyco etc
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The Tata strategy is essentially a top-down strategy. You can
acquire the image of a high quality, manufacturing facilities of
high quality, you don't acquire liabilities, but brand assets."
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Every noble acquisition is attended with its risks; he who fears to
encounter the one must not expect to obtain the other- Pietro Metastasio
Hubrius hypothesis- Corporate takeovers generate positive
gains, that target firms shareholders benefit and that bidding
firms shareholders do not loose.
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