m&a of tatamotors and jaguars
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By:
Babita Sharma: 08(SR)Bansi Pandya:11(IT)
Shreeti Daddha: 09(SR)
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Mergers is a fusion between two or more
enterprises where the identity of one or moreis lost and the result is a single enterprise.
Acquisition, also known as takeover is the
buying of one company by another.
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TATA GROUP is 150 year old, previously Tata
Engineering and Locomotive Company, Telco. Indias largest passenger automobile and
commercial vehicle.
Tata Motors was established in 1945
Listed on the New York Stock Exchange in
2004.
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Jaguar and Landrover(informally JLR) is a britishautomotive company.
Jaguar in 1975 - Nationalized in due to financial
difficulties 1990 - Taken over by Ford Founded in 1948 as a marquee of the Rover
Company. Known for superior off-road performance, Used
by military for projects and expeditions, Safe butless reliable, Makeover in recent times
In 1994 Rover Group is taken over by BMW &sold to FORD MOTORS for 2.75 bn$ in 2000
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Ford acquired Jaguar for $2.5 billion in 1989.
Ford acquired Land Rover for $2.75 billion in2000.
But the US auto major put the two marquees
on the market in 2007 after posting losses of
$12.6 billion in 2006 - the heaviest in its 103-
year history.
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Reports said losses at Jaguar stood at USD
715 million in 2006. The Land Rovers profit, on the other hand,
was driven by the record sale of 2.26 lakhvehicles, an 18% growth in 2007.
Bringing down production costs and turningaround the company successfully will be thechallenge-Its a test that Ford failed.
Ford is combining both the brands
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12/06/2007- Announcement from Ford that it plans to sell
Land Rover and Jaguar. August 2007 - Major bidders were identified:
Tata Motors,
M&M, Ceribrus capital Management,
TPG Capital,
Apollo Management
Indias Tata Motors and M&M arrived as top bidders ($ 2.05b
& $ 1.9b) 03/01/2008 Ford announces Tata as the preferred bidders
26/03/2008 - Ford agreed to sell their Jaguar Land Rover
operations to Tata Motors.(2.3b)
02/06/2008 The acquisition was complete
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Long term strategic commitment to automotivesector
Opportunity to participate in two fast growing
auto segement Increased business diversity across market and
product Jaguaroffer a range of performance/luxury
vehicles Benefits from component sourcing, design
services and low cost engineering. Land Rover provides a natural fit for TMLs suv
segment.
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WHAT IS TATA PAYING FOR ????
100% stake in Jaguar & land
Rover Business
Tata Motors has acquired the business & initially they will be operated independently
of the partner.
Three plants in UK Tata Motors will directly own these two well invested plants by Ford.
Two advanced design &
engineering center
4000-5000 engineers engaged in testing, prototype design & power train engineering,
development & integration.
Twenty six National sales
company
Both existing national sales companies of JLR and also those that are carved out of
current Ford operation would be owned by Tata Motors.
Intellectual property rights These covers all key technologies to be transferred to JLR & perpetual royalty free
license on technologies shared with Ford.
Capital Allowance Capital allowance with a minimum guaranteed amount of US $1.1 billion to be carried
forward for future tax savings.
Support from Ford Motor Credit Ford Motor Credit will continue to support the sales of JLR for the next 12 months
Pension Contributed by Ford Ford will contribute US$ 600 million of the Pension Fund to the workers in United
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Technological advances
Diversification of markets
Synergy with Other Group Firms
Completing the Product Portfolio
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Tata gains the following
1. Improvedmanufacturing acrossdifferent product lines
2. Increasedcompetitiveness in
design andmanufacturing
Technologygets used in
TataMotors
Transfer ofTechnology
The transfer of technologyeventually helps the
companys products compete
in the local and globalmarkets.
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Company Savesmoney in the
Short Run
This contributesto the failure indiversification
Tata Motors bearsundiversifiedeconomic risk
Company experiencesShort term Cash
Outflow and increaseddebt
Company is able touse Jaguar and LandRover to enter North
American Market
Tata Motors risk getsdiversified .
International marketKnowledge Acquired
Scenario if Land Rover and Jaguar isnot Acquired
Scenario if Land Rover and Jaguar isgets acquired
Failure of the Thrustfor Market
Diversification
Success of theCompanys Thrust for
MarketDiversification
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Tata Motors
Tata Steel
Tata Hotels
Jaguar and LandRover
Lower cost of Steel (primarycomponent for vehicleproduction)
Contribution toEconomies of Scale
More competitive
spare parts costing,expertise in durability,more efficientoperations
Global Network,Technology, Aesthetic
designs for diversifiedmarkets
Reinforced credentials byassociation with top hotels.
Mutual Brand ImageEffects throughassociation
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Tata Motors is Currently in passenger cars, light
trucks,medium and heavy trucks as well as buses.
For the passenger car segment, Tata Motorsserves the low income to middle income market
It does not have an existing luxury brand tocompete with foreign counterparts such as Lexus,BMW, Mercedes Benz etc.
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Tata wanted to make a global impact and it
thinks that buying these brands at a lower
rate now, will give better value later on.
This acquisition also eases the entry of Tata in
European market which it has been eyeing for
long. A previous JV with FIAT took place, this
will further help them penetrate EU market.
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Increase sales in emerging markets
Reduce dependence on mature markets Opportunity to spread its business across
different customer segment
Reduce the company dependence on theIndian market which accounted for 90% of its
sales
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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 theglobal automobile market
Tata also got two advance design studios and technologyas part of the deal the company gets access to latesttechnology which would also allow Tata to improve theircore products in India, for eg, Indica and Safari suffered
from internal noise and vibration problems
This deal provided Tata an instant recognition andcredibility across globe which would otherwise would havetaken years Privileged & Confidential.
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Following Cost Rationalisation initiatives weretaken to improve cash flows:
Single shifts and down time at all three UK
assembly plants. Supplier payment terms extended from 45 to
60 days in line with industry standard.
Receivables reduced by 133 million from 38to 27 days. Inventory reduced by 217m between June
2008 and March 2009 from 70 to 50 days .
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Labor actions- Voluntary retirement to 600 employees.- Agency staff reduced by 800.- Offered leaves to 300 workers of Bromwhich and solihull
plant.- Additional 450 job cuts including 300 managers. Agreement with Unions to implement pay freeze and
longer working hours (equivalent to approximately 20%reduction in labor costs.)
Engineering and capital spending efficiencies. Fixed marketing and selling costs reduced in line with sales
volume. Reduction in all other non-personnel related overhead
costs.
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Cumulative losses for many years
Goodtime to get hold of two unique brandsfor Tata Motors
Unavailability of other options
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Global Footprint
Long term economies of scale Broaden the brand portfolio
Long term commitment to automobile sector
Recognition to own the cheapest car as wellas most luxurious cars
Cost competitive advantage
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Financing the deal
Investor disagreement
Unfavourable economic conditions especially
in the target market
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Debt burden
Fall in share price
Inexperience in handling luxury brands
Strong competition
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The biggest buyout in automobile space by an automobilecompany, Tata Motors was completed on june 3, 2008 as it boughtthe ownership of luxury brands, JAGUAR and LANDROVER for $2.3billion on a cash free debt free basis
THE LEVERAGE BUYOUT SCENE
Tata motors raised $3 billion , about Rs. 12000 crore throughbridge loans of fifteen months from a clutch of banks includingJP MORGAN, CITIGROUP, and STATE BANK OF INDIA
Company charted out plans to raise rs. 7200 crore via rights issue,
proceeds of which were to be used to part finance the JLR deal ofrs.9228.75 crore
The rights issue raised the equity capital of TATA MOTORS by 30-35% by march 2009
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Successful
Record Revenues & earnings
Net Income growth
Volume growth
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Grow the business through new products &
market expansion
Started assembling Land Rover vehicles atPune Plant
The company is also seeking to establish a
manufacturing base in China.
JLR to spend 8.2 mn over the next 5 years to
compete more effectively with Audi, BMW,
Mercedes Benz.
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Transform the business structure to deliver
sustainable returns Investment in product development and
technology to maintain high quality
The company aims to increase its marketingand dealer network in emerging markets
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THANK YOU