MERGER & ACQUISITIONS CASE STUDY – TATA & JAGUAR, LAND ROVERPRESENTED TO:

MR. P. K. GUPTA

LECTURER

PRESENTED BY:

NIDHI ANN MATHAI

02211403912

TATA MOTORS OVERVIEW TATA GROUP is 150 year old, Previously Tata

Engineering and Locomotive Company, Telco.

India's largest passenger automobile and commercial vehicle.

Tata Motors was established in 1945

Listed on the New York Stock Exchange in 2004.

It is the 5th largest medium and heavy commercial vehicle manufacturer in the world. listed in BSE, NSE & NYSE.

Subsidiaries- JAGUAR CARS

LAND ROVER

TATA DAEWOO COMMERCIAL

JAGUAR OVERVIEW JLR was a part of Ford's Premier Automotive Group

(PAG) and were considered to be British icons.

Jaguar was involved in the manufacture of high-end luxury cars

Jaguar Cars Ltd. ( better known simply as Jaguar) is an automaker from England,

United Kingdom that manufactures luxury and executive motor car.

Sir William Lyons founded jaguar as the Swallow Sidecar Company in 1922, originally making motorcycle sidecars before switching to passenger cars.

The name was changed to Jaguar after the second world war due to the unfavorable connotations of the SS initials.

LAND ROVER OVERVIEW

British car manufacturer founded in 1948 as a marquee of the Rover Company.

Known for superior off-road and road performance

1976 – 1 million cars running on the road

In 1994 Rover Group is taken over by BMW

Sold to FORD MOTORS for $ 2.75 b in 2000.

Used by military for projects and expeditions, Safe but less reliable, Makeover in recent times

Land Rover manufactures high-end SUVs.

Reports said losses at Jaguar stood at USD 715 million in 2006.

Jaguar was not 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.

Ford was combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar was so intertwined.

FORD’S REASONS FOR THE SALE

RATIONALE FOR ACQUISITION

Provide significant potential for revenue synergy including giving TATA greater international distribution broader product range and better customer service skills

Tata gains access to world class engineering capability

Strengthens relationship b/w Tata steel and motoring business

Research and development facilities at a reasonable price.

Help TATA in Component sourcing, design services and low cost engineering.

Corus being the major supplier of automotive steel to JLR and other automobile industries in USA and Europe, acquiring JLR would result in a cost synergy for TATA motors

To make a global impact as buying these brands at a lower rate now, will give better value later on.

Eases entry in the European market which it has been eyeing for long.

Reduce dependence on the Indian market that accounted for 90% of its sales.

Opportunity to spread business across different customer segments.

To compete with the current market leaders in luxury brands – BMW, Audi, Mercedes.

Access to large distribution network.

JLR had many new models lined up for next 3 years, so no much work just profits.

Strong R & D culture and facilities.

TATA’S OBJECTIVES

12/06/2007- Announcement from Ford to sell Land Rover and Jaguar.

August 2007 - Major bidders identified

Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management

India’s Tata Motors and M&M top bidders ($ 2.3b & $ 1.9b)

03/01/2008 – Ford announced Tata’s as the preferred bidders

26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors.

02/06/2008 – The acquisition completed

THE DEAL - PROCESS

CAPITAL STRUCTURE

Tata motors raised a bridge loan of US $ 3 billion through syndicate of banks.

Additional amount of US $ 0.7 billion was for engine and component supply, contingencies and working capital.

The amount was repaid in following manner Rs 1.92 billion Underwriting agreement with JM financial consultants

Rs 1.75 billion was raised through a deposit scheme from the public

Additional subscriptions by promoter companies- Tata sons, Tata capital and Tata Investment Ltd.

In $ million

particulars TAMO JLR consolidatednet tangible assets 2510 2246 4756net intangible assets 111 2010 2121vehicles financing receivables 2935 - 2935net current assets -57 -107 536cash 638 - 638trade investments 233 - 233pension asstes - 696 696other assets 3 297 300total assets 6373 5142 12215

warranty liability and other provisions 489 2667 3156pension liability - 19 19deferred tax liability 238 - 238shareholders equity 2314 2456 2314capital assets - - 156minority interest 30 - 30debt 3302 - 6302total liability 6373 5142 12215

Balance sheet

TAMO JLR SPV Cons..

sales 10210 14214 - 24424

cost synergies - - - -

EBITDA 1196 935 - 2131

EBITDA margin 11.70% 6.60% - 8.70%

depreciation 218 699 - 917

interest 140 42 - 182

other income 105 - - 105

PBT 944 194 - 1138

interest cost of acquisition - 225 225

proforma PBT 944 194 -225 913

impact on PBT -3% - - -

In $ millionP&L A/c

The profits for the first quarter for the year 2008-09 were at 3.26 billion

Q3 the sales of passenger vehicles went down to 41,287 units a drop of 14.14%

Tata Motors cut production across different categories.

Following Cost Rationalization initiatives were taken 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 38 to 27 days.

Inventory reduced by £217m between June 2008 and March 2009 from 70 to 50 days.

POST ACQUISITION

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.

Proforma Valuations (TAMO +JLR)

Share price 630

O/S shares 385

Mkt cap ($m) 6,070

Net Debt ($m) 5,664 This debt includes $3bn raised for acqusisition

EV ($m) 11,735

EV ($m) 0.48 The current valuations are inline or discount to global peers

EV/EBITDA (1-yr forward)

5.5

P/E (1-yr forward) 6.65

TAMO + JLR: Leverage and Valuation ratios

WHAT HAPPENED NEXT?

16SALESPROFITS

SHARE PRICE MOVEMENT

PROBLEMS Drop in share prices

Failure of rights issue

Huge debt burden

Sales volume decreased by 35.2%

Lack of consumer loans

Issue of timing

Operational freedom slows pace of change

Depressed state of the global premium car market

Jaguar/Land Rover lost 306 million pounds ($504 million) for the fiscal year ending March 2009

Tata Motors reported a net loss of Rs3.29bn ($67 million) for the quarter to end-June

Extremely high manufacturing costs in Britain

Eliminated more than 2,200 jobs

CURRENT STATUS

Jaguar land rover sales continued their upward trend since launch in June 2009.

During the quarter ended June 2010 JLR generated a profit of Rs 1613 crore. Tata motors had never ventured into luxury car segment before acquiring JLR, hence the inefficiency in handling such segment hampered Tata motors’ operational efficiency for quite some time.

Jaguar Land Rover is now a strong, profitable and innovative competitor in the premium car industry.

26% Delivery Growth.

JAGUAR 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%.

Recently TATA MOTORS drove past Reliance Industries to top the 2010edition of India’s Most Valuable Brands survey with a valuation of $8.45billion. A major part of this success can be attributed to the JAGUAR AND LANDROVER.