MnA1_tripti

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In 1991, the Indian Economic Reform Movement opened up a lot of challenges and

opportunities both at the domestic and the international arena. Corporate India soon began to

realize the importance of mergers and acquisitions in order to stick around the global market.

It was not until 2000 that Indian companies started their foray in acquiring companies around

the globe. The quest began when Tata Tea took over a company twice its own size, TetleyTea in 2000. From 2003 onwards, the trend of taking over other companies by Indian

companies gained substantial pace.

Until up to a couple of years back, the news that Indian companies having

acquired American-European entities was very rare. However, this scenario has taken a

sudden U turn. Nowadays, news ofIndian Companies acquiring a foreign businesses are

more common than other way round.

Buoyant Indian Economy, extra cash with Indian corporates, Government policies and newlyfound dynamism in Indian businessmen have all contributed to this new acquisition trend.

Indian companies are now aggressively looking at North American and European markets to

spread their wings and become the global players.

The Indian IT and ITES companies already have a strong presence in foreign markets,

however, other sectors are also now growing rapidly. The increasing engagement of the

Indian companies in the world markets, and particularly in the US, is not only an indication

of the maturity reached by Indian Industry but also the extent of their participation in the

overall globalization process.The valuable global acquisitions done by Indian companies so far-

1. Tata acquired Corus: Undoubtedly the father of all acquisition deals in India, Tata Steel

took over the Anglo-Dutch firm Corus Group in 2006 to create the fifth largest steel company

of the world. The deal was worth $7.6 billion (Rs. 36,650 crore) at that time, and is the

biggest acquisition in the history of India.

2. Hindalco acquired Novalis: Aditya Birla Groups Hindalco Industries Limited, Indias

largest non-ferrous metals company, acquired the Canada based firm Novalis in an all-cash

transaction for $6 billion. Following the transaction Hindalco, along with Novelis, was theworlds largest aluminium rolling company, one of the biggest producers of primary

aluminium in Asia, and Indias leading copper producer.

3. Tata acquired Jaguar and Land Rover: Tata shook the automobile market once again in

2008 when it snapped Britains most famous automobile manufacturers, Jaguar and Land

Rover, in a $2.3 billion deal with Ford, their American owners. The deal showed Indias

growing global ambition in owning the best brands.

4. Essel Packaging acquired Propack: Subhash Chandras Essel Packaging Ltd (EPL)

acquired the Swiss tube packaging major Propack, and joined hands to become the worlds
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largest in laminated tubes. This deal was made way back in 2000 and an Indian MNC became

the World No.1 because of it.

5. Ranbaxy acquired 3 European drug-makers: In 2006, Ranbaxy Laboratories Ltd. (RLL)

created quite a stir when it announced the acquisition of 3 drug-makers in Europe, all within a

weeks time. Allen S.p.A, a division of GlaxoSmithKline (GSK) in Italy, Romanias largest

independent generic drug producer Terapia and drug maker Ethimed NV in Belgium, three of

these firms were acquired by the Indian firm. This deal consolidated Ranbaxys position after

losing to rival Dr. Reddys Laboratories in a bid for German drug maker Betapharm earlier.

6. Wockhardt acquired Negma Laboratories: In 2007, Pharmaceutical and biotechnology

major Wockhardt bought the fourth largest independent, integrated pharmaceutical group in

France, Negma Laboratories. At a deal of $265 million, Wockhardt became the largest Indian

pharmaceutical company in Europe with more than 1500 employees based in the continent.

7. Times Group Acquired Virgin Radio: Bennett Coleman & Co Ltd, Indias largest media

group and the holding company of the Times of India group, bought Virgin Radio in the UK

in a 53.2 million (Rs 445cr approx) deal with SMG Plc. in 2008.

8. Mahindra & Mahindra acquired Schoneweiss: Mahindra & Mahindra acquired 90%

stakes of Schoneweiss, a leading company in the forging sector in Germany. The deal took

place in 2007, and consolidated Mahindras position in the global market.

9. Sterlite acquired Asarco: Sterlite Industries, a part of the Vedanta Group signed an

agreement regarding the acquisition of copper mining company Asarco for $ 2.6 billion in

2008. The deal surpassed Tatas $2.3 billion deal ofacquiring Land Rover and Jaguar. After

the finalization of the deal Sterlite would become third largest copper mining company in the

world.

10. ONGC acquired Imperial Energy: Oil and Natural Gas Corp. Ltd (ONGC) took control

of Imperial Energy Plc. for $1.9 billion in early 2009. About 96.8% of London-listed firms

total shareholders accepted the takeover offer.

TATA & Jaguar and Land Rover (JLR)

On June 02, 2008, India-based Tata Motors completed the acquisition of the Jaguar and Land

Rover (JLR) units from the US-based auto manufacturer Ford Motor Company (Ford) for

US$ 2.3 billion, on a cash free-debt free basis. JLR was a part of Fords 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.

Forming a part of the purchase consideration were JLRs manufacturing plants, two advanced

design centres in the UK, national sales companies spanning across the world, and also

licenses of all necessary intellectual property rights. Tata Motors had several majorinternational acquisitions to its credit. It had acquired Tetley, South Korea-based Daewoos


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commercial vehicle unit, and Anglo-Dutch Steel maker Corus. Tata Motors long-term

strategy included consolidating its position in the domestic Indian market and expanding its

international footprint by leveraging on in-house capabilities and products and also through

acquisitions and strategic collaborations

Analysts were of the view that the acquisition of Jaguar and Land Rover, which had a global

presence and a repertoire of well established brands, would help Tata Motors become one of

the major players in the global automobile industry.

On acquiring JLR, Rattan Tata, Chairman, Tata Group, said, We are very pleased at the

prospect of Jaguar and Land Rover being a significant part of our automotive business. We

have enormous respect for the two brands and will endeavor to preserve and build on their

heritage and competitiveness, keeping their identities intact. We aim to support their growth,

while holding true to our principles of allowing the management and employees to bring their

experience and expertise to bear on the growth of the business. Ford had bought Jaguar for

US$ 2.5 billion in 1989 and Land Rover for US$ 2.7 billion in 2000. However, over the

years, the company found that it was failing to derive the desired benefits from these

acquisitions.

Ford Motors Company (Ford) is a leading automaker and the third largest multinational

corporation in the automobile industry. The company acquired Jaguar from British Leyland

Limited in 1989 for US$ 2.5 billion. After Ford acquired Jaguar, adverse economic

conditions worldwide in the 1990s led to tough market conditions and a decrease in the

demand for luxury cars. The sales of Jaguar in many markets declined, but in some markets

like Japan, Germany, and Italy, it still recorded high sales. In March 1999, Ford establishedthe PAG with Aston Martin, Jaguar, and Lincoln. During the year, Volvo was acquired for

US$ 6.45 billion, and it also became a part of the PAG.

OBJECTIVE OF TATA MOTORS:-

1. Motivation/ reason for the merger/ acquisition; Tata Motors wanted to have presence outside India It desired to have a diversified line-up ranging from the world's cheapest car to

some of the more expensive It enabled Tatas entry into luxury car segment

JLR It had become a cash drag on Ford It would enable Ford to focus on its core Ford brand and "One Ford" global

transformation. Take advantage of the low cost manufacturing base in India

2. Friendly/ hostile; Friendly3. Value of the merger/ acquisition;

Deal Value: $2.3 Billion4. How the merger/ acquisition value compared to the market value of the target firm.

The two brands cost Ford $5.3 billion. Tata says the deal obligates Ford to payabout $600 million into the Jaguar-Land Rover pension fund on closing, so Ford willnet only about $1.7 billion.

5. The impact of the merger/ acquisition on the price of the buyer firm this catapultsTata Motors into a high-profile position in the global auto industry. The shares of Tata


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Motors had initially taken a hit because the synergy had still to be exploited. But itbounced back after a little while and reported a good margin.6. Any other

Both the luxury brands had become a major cash drag on Ford particularlydraining was Jaguar, into which Ford sank nearly $10 billion trying to revive the

brand after spending $2.5 billion to buy it in a deal that closed in 1990. The sale toTata was central to Fords strategy to turn the company around by refocusing theautomaker on its core brands: Ford, Mercury and Lincoln. After Tata deal only Volvoremained from Ford's decade-long European buying spree. As part of the deal, Fordwill continue to supply power trains, stampings and other unnamed vehiclecomponents to Tata for "differing periods", as well as R&D research, environmentaland platform technologies, and even accounting services, among others.

The Deal

On March 26, 2008, Tata Motors entered into an agreement with Ford for the purchase ofJLR. Tata Motors agreed to pay US$ 2.3 billion in cash for a 100% acquisition of thebusinesses of JLR. As part of the acquisition, Tata Motors did not inherit any of the debtliabilities of JLR - the acquisition was totally debt free.

The Benefits

Tata Motors was interested in acquiring JLR as it would reduce the companys dependenceon the Indian market, which accounted for 90% of its sales. The company was of the view

that the acquisition would provide it with the opportunity to spread its business acrossdifferent geographies and across different customer segments

Morgan Stanley reported that JLRs acquisition appeared negative for Tata Motors, as it hadincreased the earnings volatility, given the difficult economic conditions in the key marketsof JLR including the US and Europe. Moreover, Tata Motors had to incur a huge capitalexpenditure as it planned to invest another US$ 1 billion in JLR. This was in addition to theUS$ 2.3 billion it had spent on the acquisition. Tata Motors had also incurred huge capitalexpenditure on the development and launch of the small car Nano and on a joint venture withFiat to manufacture some of the companys vehicles in India and Thailand. This, coupledwith the downturn in the global automobile industry, was expected to impact the profitabilityof the company in the near future.


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POST MERGER

Some of the factors on basis of which the post acquisition performance can be analysed arediscussed below:

MARKET CAPITILISATIONTwo months before it acquired JAGUAR AND LANDROVER (JLR) in March 2008, TATAMOTORS had a market capitalization of Rs 24,000 crore. Five months after the deal, it hadplunged to Rs 6,500 crore. The market as whole during that time negated the acquisition asboth the companies JAGUAR AND LANDROVER had been making losses under theirformer owner ford motors, however there was an opportunity hidden in exploring the strongbrand value and research and development hidden behind both the companies and eventuallythis opportunity was utilized to the fullest extent by Tata motors and its market capitalizationnow stands at 71500 crore which is more than a tenfold rise from the initial post acquisitionlow.

BRAND VALUERecently TATA MOTORS drove past Reliance Industries to top the 2010 edition of IndiasMost Valuable Brands survey with a valuation of $8.45 billion. A major part of this successcan be attributed to the JAGUAR AND LANDROVER brands. Jaguar and land rover bothhave been part of a larger conglomerate for a long time, however their potential was notunlocked then, TATA MOTORS succeeded in doing that. Jaguar and Landover steadilystarted regaining their rhythm in the market and contributed towards creating a good brandvalue for TATA MOTORS. TATA MOTORS-JLR brand soared 172% in one year to $8.45billion from only $3.1 billion in 2008-09.

CASH FLOWS AND BOTTOMLINEDuring the quarter ended June 2010 JAGUAR LANDROVE has generated a positive cashflow of 23 million, post capital and product development expenses the first such instancesince the deal. Moreover It posted a profit of 221 million (Rs 1,613 crore) for the quarter

ended June against a loss of 64 million in the corresponding quarter. The margin expansionwas driven by cost cutting measures and currency tailwinds as well as sales of higher variantsof Landover and increasing sales in China and USA

TOPLINEJAGUAR LANDROVER global sales in July 2010 were 19,386 vehicles, higher by 30%.Jaguar sales for the month were 5,676, higher by 26%, while Land Rover sales were 13,710,higher by 31%. Cumulative sales of Jaguar Land Rover for the fiscal are 76,539 nos., higherby 50%. Cumulative sales of Jaguar are 21,131 nos., higher by 31%, while cumulative salesof Land Rover are 55,408 nos., higher by 59%.
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