Tata’s acquisition of JLR
An analysis
Abhishek Jamwal
Apoorva Chawla
Arun Chikara
Kratika Agarwal
Shadab Wajid Khan
Sonal Bhatia
Tom George
Toolika Kumar
THE PLAYERS
TATA MOTORS
Tata Motors Limited is an automobile company. Through its subsidiaries, the Company is
engaged in engineering and automotive solutions, construction equipment manufacturing,
automotive vehicle components manufacturing and supply chain activities, machine tools
and factory automation solutions, high-precision tooling and plastic and electronic
components for automotive and computer applications, and automotive retailing and
service operations. The Company operates in two segments: automotive operations and
all other operations. Its automotive operations include all activities relating to development,
design, manufacture, assembly and sale of vehicles including financing thereof, as well as
sale of related parts and accessories. The Company’s other operations business segment
includes information technology (IT) services, machine tools and factory automation
solutions and investment business.
JAGUAR LAND ROVER
Jaguar Land Rover is a business built around two great British car brands with exceptional
design and engineering capabilities. Jaguar Land Rover’s manufacturing facilities are in
the UK.
Areas of business
Jaguar Cars, founded in 1922, is one of the world’s premier manufacturers of luxury
saloons and sports cars. Land Rover has been manufacturing 4x4s since 1948. Its
products have defined the segments in which they operate.
Jaguar Land Rover’s manufacturing facilities are in the UK. The Jaguar Land Rover
business employs over 16,000 people, predominantly in the UK, including some 3,500
engineers at two product development centres, in Whitley in Coventry and Gaydon in
Warwickshire.
The Jaguar XF, XJ and XK models are manufactured at the company's Castle Bromwich
plant in Birmingham, UK, while the Jaguar X-TYPE is produced alongside the Land Rover
Freelander 2 at the Halewood plant in Liverpool, UK. Land Rover's Defender, Discovery 3,
Range Rover Sport and Range Rover models are all built at Solihull, UK.
The business is a major wealth generator for the UK, with 78 per cent of Land Rovers
exported to 169 countries and 70 per cent of Jaguars exported to 63 countries. Sales to
customers are conducted principally through franchised dealers and importers.
Location
Jaguar Land Rover is based in the UK.
Why couldn’t Ford give life to land rover??
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 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.
THE DEAL
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 Ford’s 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.
The all-cash deal, which was agreed in March, includes all necessary intellectual property
rights, manufacturing plants, two advanced design centers in the UK and a worldwide
network of sales companies, Tata Motors said in a statement.
Tata Motors was interested in acquiring JLR as it will reduce the company’s dependence
on the Indian market, which accounted for 90% of its sales. Morgan Stanley reported that
JLR’s acquisition appeared negative for Tata Motors, as it had increased the earnings
volatility, given the difficult economic conditions in the key markets of JLR including the US
and Europe.
Tata Motors raised $3 billion (about Rs 12,000 crore) through bridge loans for 15 months
from a clutch of banks, including JP Morgan, Citigroup, and State Bank of India. Tata came
under cash crisis because of the Corus deal and the huge investments in the TATA Nano
project which itself was surrounded in a lot of uncertainties. The credit rating companies
also took a negative outlook toward this deal because of the huge debt requirement to
complete the deal.
Analysts were of the view that the acquisition of Jaguar and Land Rover, which had a
global presence and a repertoire of well established brands, would help Tata Motors
become one of the major players in the global automobile industry.
On acquiring JLR, Rattan Tata, Chairman, Tata Group, said, “We are very pleased at the
prospect of Jaguar and Land Rover being a significant part of our automotive business.
We have enormous respect for the two brands and will endeavor to preserve and build on
their heritage and competitiveness, keeping their identities intact. We aim to support their
growth, while holding true to our principles of allowing the management and employees to
bring their experience and expertise to bear on the growth of the business.” Ford had
bought Jaguar for US$ 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.
Why did TATA go for JLR?
Tata Motors had several major international acquisitions to its credit. It had acquired Tetley,
South Korea-based Daewoo's 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.
On acquiring JLR, Ratan 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."
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.
1. Tata also got two advance design studios and technology as part of the deal. This would
provide Tata Motors access to latest technology which would also allow Tata to improve
their core products in India, for e.g., Indica and Safari suffered from internal noise and
vibration problems.
2. This deal provided Tata an instant recognition and credibility across globe which would
otherwise would have taken years.
3. The cost competitive advantage as Corus was the main supplier of automotive high
grade steel to JLR and other automobile industry in US and Europe. This would have
provided a synergy for TATA Group on a whole. The whole cost synergy that can be
created can be seen in the diagram that follows.
4. In the long run TATA Motors will surely diversify its present dependence on Indian
markets (which contributed to 90% of TATA’s revenue). Along with it due to TATA’s
footprints in South East Asia will help JLR do diversify its geographic dependence from
US (30% of volumes) and Western Europe (55% of volumes).
TACO
• TAMO's flagship ancillary
biz.
• Customers inc. Ford,
Daimler, FIAT etc.
TCS TATA Corus
• Provides engineering • Leader in the automative
design, manufacturing grade steel.
solutions and sourcing • 16% of revenue from auto
services. steel division.
• Major customer include
Chrysler, Ford , GM etc.
INCAT
• Provides services like
supplier programs,
consulting services and
global outsourcing.
• Customers include
Chrysler, Ford, GM etc.
Analysts were of the view that the acquisition of JLR, 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.
Is deal really worth it?
Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors, as it
had increased the earnings volatility, given the difficult economic conditions in the key
markets of JLR including the US and Europe. Moreover, Tata Motors had to incur a huge
capital expenditure as it planned to invest another US$ 1 billion in JLR. This was in
addition to the US$ 2.3 billion it had spent on the acquisition. Tata Motors had also
incurred huge capital expenditure on the development and launch of the small car Nano
and on a joint venture with Fiat to manufacture some of the company’s vehicles in India
and Thailand. This, coupled with the downturn in the global automobile industry, was
expected to impact the profitability of the company in the near future.
Worldwide car sales are down 5% as compared to the previous year. The automobile
industry the world over is rationalizing production facilities, reducing costs wherever
possible, consolidating brands and dropping model lines and deferring R&D projects to
conserve funds.
The Chinese and Indian domestic markets for cars have been exceptions. While China
has witnessed a significant reduction in its automotive-related exports and supplies to
automobile companies, the Chinese domestic car market has grown by 7%. In India the
passenger car market has remained more or less flat compared to the previous year.
Since then, its fortunes have been unsure, as the slump in demand for automobiles has
depressed its revenues at the same time Tata has invested nearly $400 million in the Nano
launch and struggled to pay off the expensive $3 billion loans it racked up for the Jaguar/
Land Rover shopping bill. Within the space of a year, Tata Motors has gone from being a
developing-world success story to a cautionary tale of bad timing and overly ambitious
expansion plans.
Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the
previous year.All through the fiscal year ended March 2009 the company bled money,
losing a record $517 million on $14.7 billion in revenues, just on its India operations.
Jaguar and Land Rover lost an additional $510 million in the 10 months Tata owned it until
March 2009.
In January 2009, Tata Motors announced that due to lack of funds it may be forced to roll
over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 billion. The
financial burden on Tata Motors was expected to increase further with the pension liability
of JLR coming up for evaluation in April 2009.
So what difference did it make to TATA?
There was immense pressure from the shareholders, analysts’ community etc. to abort the
deal as they unanimously agreed that it was over priced and the balance sheet of TATA
was not in a position to absorb more loan (as discussed in the previous section). Ford
purchased JLR at $5 bn and sold at almost half the price to TATA after operating it for
losses for few years. As the market would have recovered from recession the valuation
would have increased since there would have been growth in the demand of JLR thus
creating more problems for TAMO. Tata would not have been able enter into the premium
segment (>10 lakhs) in India. TAMO would have lacked in robust designing capabilities.
Above all, at that time no other major automobile brand was available for acquisition with
such designing and R&D capabilities.
TOWS Matrix Analysis
Threats Opportunities: Weaknesses:
• Volatility in market • Rising appetite for luxury • Inexperience in Handling
driven by new products automobiles in growing luxury automobile brand
• Strong presence of markets like India and • Inexperience in turning
competitors like China around loss making
Mercedes, BMW, Lexus • Established European company
and Infinity brands available at • R & D and designing
• Receding sales and affordable investment capabilities
brand image • Support from Jaguar in
• Downturn making Technology, Engine, IT,
Investment riskier and Accounting
costlier • Complete product line with
• 90% of TAMO revenues addition of luxury brands
comes from one market • Access to European and
alone-India American Market
Strengths:
• Tata’s strong management capability
• Strong monetary base to invest
• Synergy due to Corus, TACO and TCS
• Experience in growing market like India
• New product development and brand building experience
• JLR experience and designing capability would help TAMO in improving their
existing products in Indian markets.
• JLR’s strong brand image will ease acceptance of TAMO in international markets
• Keeping the existing management team of JLR make turning around easier
• Leverage experience gained with Tetley and Corus in allaying market
apprehensions about acquisition
• Make Jaguar design center as their global design HQ
• Use Jaguar channel to distribute TAMO brands without merging the brands
• Acquisitions like JLR will help TAMO in competing with brands like Mercedes etc.
• Proven Management and brand building capabilities would facilitate faster JLR
turnaround
• Strong financial muscle will help TAMO to invest in R&D and produce new better
products
• Improve risk profile of TAMO with diversification in different markets
• JLR would give TAMO an in-house R&D and designing capabilities
• Better utilization of cash reserves available with TAMO
• Reduce production cost of JLR by utilizing resources of other TATA companies like
Corus
Has the deal made JLR profitable?
This question is answered by the latest financial results of JLR. The key financial metrics
from their statements show a rosy picture. The acquisition had really paid off in terms of
financial stability of JLR.
Strong financial performance improvement
JLR witnessing a Turnaround
A summary of JLR’s strong financial performance in 2010/11
The Road Ahead
Tata Motors had formed an integration committee with senior executives from the JLR and
Tata Motors, to set milestones and long-term goals for the acquired entities. One of the
major problems for Tata Motors could be the slowing down of the European and US
automobile markets. It was expected that the company would address this issue by
concentrating on countries like Russia, China, India, and the Middle East.
References
1. JLR financials --- http://www.jaguarlandrover.com/pdf/
Investor_Presentation_FY2011.pdf
2. Deal details-- http://www.hindu.com/2008/03/27/stories/2008032750100100.htm
AND http://www.reuters.com/article/2008/06/02/us-tata-jaguar-idUSBMA00084220080602
3. TATA MOTORS PROFILE-- http://www.reuters.com/finance/stocks/overview?
symbol=TAMO.NS
4. JLR PROFILE-- http://www.tata.com/company/profile.aspx?sectid=ZhDd6fXWtEY=
