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Abstract of the Merger

In June 2008, India-based Tata Motors Ltd. announced that it had completed the acquisition of the

two iconic British brands - Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 3

billion. Tata Motors stood to gain on several fronts from the deal. One, the acquisition would help

the company acquire a global footprint and enter the high-end premier segment of the global

automobile market. After the acquisition, Tata Motors would own the world's cheapest car - the US$2,500 Nano, and luxury marquees like the Jaguar and Land Rover. Though there was initial

scepticism over an Indian company owning the luxury brands, ownership was not considered a

major issue at all.

Tatas investment in JLR seemed to be poorly timed and there were many critics who questioned the

strategic logic of the move as well as its timing. Shortly after the takeover, demand in the global

market for luxury cars collapsed as a result of the financial crisis and Tata was forced to refinance to

support its investment.

According to industry analysts, some of the issues that could trouble Tata Motors were economic

slowdown in European and American markets, funding risks, currency risks etc.

TATA Motors Background

Multinational automotive manufacturing company founded in the year 1945.

Products include passenger cars, trucks, vans, coaches, buses, military vehicles.

8th largest motor vehicles manufacturing company, 4 th largest truck manufacturer, 2nd largest

bus manufacturer by volume.

As of 2012 Profit of US$ 2.28 billion and total assets of US$ 28.05 billion.

Jaguar Land Rover Background

Jaguar cars founded in 1922 and Land Rover in 1978.

Ford Motors acquired 1989 and Land Rover in 2000.

In 2008, Jaguar Land Rover Company was established after TATA acquisition.

As of 2013 Profit of 1.215 billion.

Both the company are manufacturers of luxury cars/premium segment cars & SUV.

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British brand under Ford

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 established the PAG (Premier Automotive Group) with Aston Martin, Jaguar, and

Lincoln. During the year, Volvo was acquired for US$ 6.45 billion, and it also became a part of thePAG.

Reasons: -

o Unprofitable venture

o Economic condition were unstable

o High cost of labour

o Cost of developing luxury models were high

Ford sells JLR

In September 2006, after Allan Mulally (Mulally) assumed charge as the President and CEO of

Ford, he decided to dismantle the PAG. In March 2007, Ford sold the Aston Martin sports car unit

for US$ 931 million. In June 2007, Ford announced that it was considering selling JLR.

The Deal

Ford sells JLR to Tata in March 2008 just over US$ 3 billion, just a few months before a

collapse in global demand in the international car market.

Tata financed the takeover with $3bn of new long-term loans.

The price paid by Tata was approximately half of what Ford paid to buy Jaguar and Land

Rover.

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The deal took over a year to agree - which may have helped with the post-merger

integration. Tata recognised that it would continue to need support from Ford who is a main

supplier of car components to the two brands.

No significant change proposed to the businesses by Tata. They claimed that staff, trade

unions and the UK government had been kept informed about the proposed takeover and

supported the move.

The deal has been endorsed by trade unions, which secured a commitment from Tata to

continue with JLRs production plans until the end of 2011. This includes development of

new models.

TATA charted out plans to raise Rs. 4200 crore via rights issue and around US$ 600 million

through GDR.

Key motives of the takeover

Acquiring JLR would provide significant potential for revenue synergies, including giving Tata

greater international distribution, broader product range and better customer service skills.

Tata gains access to world-class engineering capability.

Strengthens relationship between Tatas steel and motoring businesses.

Challenges in the merger

Complexity in raising fund.

Global financial crisis had severely affected the global automobile industry especially in

luxury car segment.

Increasing material and fuel prices had slowed down demand of vehicles.

TATA was planning to invest another US$ 1 billion in JLR. Huge capital incurred on

development of Nano and on joint venture with Fiat.

Morgan Stanley reported that JLR acquisition will lead to earning volatility of TATA.

What happened next?

Market capitalization

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2 months before it acquired JLR, TATA motors had a market capitalization of Rs. 24000

crore. 5 months after the deal it plunged to Rs. 6500 crore. At that time, the markets didn't see

much value in the two marquee labels both of which had been loss making for many years

under the management of the former owner Ford Motor Company. But today TATA motors

market capitalization is more than Rs. 100000 crore.

Brand Value

TATA motors have surpassed RIL in the top 50 Indias most valuable brand in the year 2012

& 2013 with a valuation of US$ 7370. Major part of the success can be attributed to JLR.

Profit

Net income (JLR):

2008 09 = GBP (402.4) million

2009 10 = GBP 23.5 million

2010 11 = GBP 1,035.9 million

2011 12 = GBP 1,481.1 million

2012 13 = GBP 1,215.0 million

Net income (TATA Motors):

2008 09 = Rs. (2465) crore

2009 10 = Rs. 2516.86 crore

2010 11 = Rs. 9220.79 crore

2011 12 = Rs. 13573.91 crore

2012 13 = Rs. 9862.49 crore

Sales