Mergers and Acquisition- TATA-JLR @ garg
-
Upload
nikhil-garg -
Category
Documents
-
view
3.309 -
download
1
description
Transcript of Mergers and Acquisition- TATA-JLR @ garg
Mergers & Acquisition
Submitted To: Prof. R. Sahu
Submitted By:Jitesh Maharwal (2004IPG44)
Nikhil Garg (2004IPG29) Sunny Tyagi (2004IPG71)
Harendra Singh (2004IPG83)
Tata Motors: Acquisition of Jaguar &Land Rover
Ford Motors Company
•Location: Dearborn, Michigan•Founded: 1903 by Henry Ford•Competitors: General Motors, Toyota•Brand names: Lincoln, Mercury, Volvo, Mazda, Jaguar and Land Rover•CEO: Alan Mulally Henry Ford and his Model T
Company Quote Change % Change
Market Cap
P/E Ann. Revenue
Ann. Net Income
Toyota Motor Corporation
100.56 -3.16 -3.05 181.51B 9.16 234,033.65 16,066.36
Daimler AG 78.29 -1.31 -1.65 79.38B 13.03 158,080.17 7,711.65
Honda Motor Co., Ltd.
31.10 -1.20 -3.72 56.41B 7.86 108,349.45 5,788.49
Nissan Motor Co., Ltd.
17.07 -0.73 -4.10 34.91B 8.58 100,257.66 4,413.04
PACCAR Inc. 46.72 -3.32 -6.63 17.12B 14.22 15,221.70 1,227.30
Ford Motor Company
7.65 -0.08 -1.03 16.83B - 172,455.00 -2,764.00
General Motors Corporation
20.51 -0.76 -3.57 11.61B - 181,122.00 -43,297.00
Top Seven Auto and Truck Manufactures Organized by Market
CapitalizationAs of April 22, 2008
Jaguar: The ups and downs
• 1922 - Founded in in Blackpool as Swallow Sidecar company • 1960 - Jaguar name first appeared in 1935• 1975 - Nationalized in due to financial difficulties• 1984 - Floated off as a separate co in the stock market• 1990 - Taken over by Ford• A statement of ultra luxury• Holds Royal warrants• Rarely advertised• Ford’s formula one entry since 1990s
The case of Land Rover
• 1948: Land Rover is designed by the Rover Car co• 1976: One millionth Land Rover leaves the production line• 1994: Rover Group is taken over by BMW• 2000: Sold to Ford for £1.8 billion• Known for superior off-road performance• Used by military for projects and expeditions• Safe but less reliable• Makeover in recent times
The Deal Process
• 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
The Deal Process
• 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 – A SNAPSHOT
• TATA GROUP – 150 YEAR OLD• Previously Tata Engineering and Locomotive
Company, Telco• Tata Motors’s break-even point for capacity
utilization is one of the best in the industry worldwide
• listed on the New York Stock Exchange in 2004
Making Waves Internationally
• NANO will mark the advent of India as a global centre for small-car production and represent a victory for those who advocate making cheap goods for potential customers at the 'bottom of the pyramid' in emerging markets.
• International praise came from Standard & Poor’s, which in December 2006 expressed the view that the “policy to support its companies and the improved financial profile of its entities also enhances the overall financial flexibility of Tata Motors.”
Key issues
• Ford acquired Jaguar for $2.5 billion in 1989.
• Ford acquired Land Rover for $2.75 billion in 2000.
• But the US auto major put the two marquees on the market in 2007 after posting losses of $12.6 billion in 2006 - the heaviest in its 103-year history.
Why is Ford selling?• Reports said losses at Jaguar stood at USD 715 million in
2006. jaguar has been a dog i.e. it has not been able to provide any profit for ford because of the high manufacturing costs provided in the united kingdom.
• The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007..
• Bringing down production costs and turning around the company successfully, will be the challenge,” analysts said. It’s a test that Ford failed.
• Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar is so intertwined.
Why acquire JLR?
Is TATA catching a falling knife…or
• Long term strategic commitment to automotive sector.
• Opportunity to participate in two fast growing auto segments.
• Increased business diversity across markets and products.
• Land rover provides a natural fit for TML’s suv segment.
• Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portfolio.
• Benefits from component sourcing,design services and low cost engineering.
Tata and the dream…NEED FOR GROWTH
• In the past few years, the Tata group has led the growing appetite among Indian companies to acquire businesses overseas in Europe, the United States, Australia and Africa - some even several times larger - in a bid to consolidate operations and emerge as the new age multinationals.
• Tata Motors is India's largest automobile company, with revenues of $7.2 billion in 2006-07. With over 4 million Tata vehicles plying in India, it is the leader in commercial vehicles and the second largest in passenger vehicles.
COMPETITIVE ADVANTAGE• Tata Motors is vulnerable to greater competition at home. Foreign
vehicle makers including Daimler ,Nissan Motor ,Volvo and MAN AG have struck local alliances for a bigger presence.
• Tata Motors, which has a joint venture with Fiat for cars, engines and transmissions in India, is also facing heat from top car maker Maruti Suzuki India Ltd , Hyundai Motor , Renault and Volkswagen
WHAT IS TATA PAYING FOR ????
Valuation of deal
Cost synergies
• Material costs and not manpower key to better margins.• Investors concerns on manpower costs misplaced• – Investors apprehensive that TAMO has agreed to continue
with plants in UK• Purchasing basket offers bigger opportunity for cost reduction• – It is more important to manage the material & sourcing costs
to improve margins – Material Cost is 4-6x the wage cost for high-end products such as Land Rover
Cost synergies
• Tata Group has multiple levers• Tata Auto Comp (TACO) - TATA group has a a rich ecosystem
of JVs with leading players in Auto ancillary space held through TACO.
• TCS, Corus and Tata Technologies have varied competencies in the Auto space
• We believe an improvement of 50-70bps in EBITDA margin possible in JLR over the next 2 years (current EBITDA margin)
• We estimate CY2007 EBITDA margin of JLR at around 6.5% – This could make the acquisition PAT accretive in CY2009/FY10E
Revenue synergies - A long-term possibility
• Revenue synergies limited in the medium term (2-3 years)• In the long-run Tata Group and Tata Motors’ footprint in
South-East Asia should help Jaguar/Land Rover diversify their geographic dependence from US (30% of volumes) and Western Europe (55% of volumes)
TAMO + JLR: Leverage and Valuation ratios
Leverage increases but coverage ratios reasonable• Headline Debt/Equity of TAMO would increase to 2.5x from
1x• Excluding the vehicle finance biz, leverage would go to 1.2x• EBITDA/Interest remains at 5.0TAMO is trading inline/modest discount to global peers• EV/Sales (1-yr forward) of 0.5x against 0.4x for global peers• P/E (1-yr forward) of 6.5x against 8.5x for global peers
TAMO + JLR: Proforma P&L
TAMO + JLR: Proforma Balance Sheet (CY2008/FY2009E)
TAMO + JLR: Proforma Cashflow(CY2008/FY2009E)