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Mergers & Acquisition
Submitted To: Prof. R. Sahu
Submitted By:Jitesh Maharwal(2004IPG44)
Nikhil Garg(2004IPG29)Sunny Tyagi(2004IPG71)
Harendra Singh (2004IPG83)
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Tata Motors: Acquisitionof Ja uar &
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Ford Motors Company
Location: Dearborn,Michigan
Founded: 1903 by Henry
FordCompetitors: GeneralMotors, Toyota
Brand names: Lincoln,
Mercury, Volvo, Mazda,Jaguar and Land Rover
CEO: Alan Mulally Henry Ford and his Model
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Top Seven Auto and TruckManufactures Organized by Market
CapitalizationAs of April 22, 2008
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Jaguar: The ups and downs
1922 - Founded in in Blackpool as Swallow Sidecar company
1960 - Jaguar name first appeared in 1935
1975 - Nationalized in due to financial difficulties
1984 - Floated off as a separate co in the stock market
1990 - Taken over by Ford
A statement of ultra luxury
Holds Royal warrants
Rarely advertised
Fords formula one entry since 1990s
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The case of Land Rover
1948: Land Rover is designed by the Rover Car co
1976: One millionth Land Rover leaves the production line
1994: Rover Group is taken over by BMW
2000: Sold to Ford for 1.8 billion
Known for superior off-road performance
Used by military for projects and expeditions
Safe but less reliable
Makeover in recent times
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TATA MOTORS A SNAPSHOT
TATA GROUP 150 YEAR OLD
Previously Tata Engineering and LocomotiveCompany, Telco
Tata Motorss break-even point for capacityutilization is one of the best in the industryworldwide
listed on the New York Stock Exchange in2004
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Key issues
Ford acquired Jaguar for $2.5 billionin 1989.
Ford acquired Land Rover for $2.75billion in 2000.
But the US auto major put the twomarquees on the market in 2007
after posting losses of $12.6 billion in2006 - the heaviest in its 103-yearhistory.
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Why is Ford selling?
Reports said losses at Jaguar stood at USD 715 million in2006. jaguar has been a dog i.e. it has not been able toprovide any profit for ford because of the highmanufacturing costs provided in the united kingdom.
The strong boy Land Rover's profit, on the other hand, wasdriven by the record sale of 2.26 lakh vehicles, an 18% YoYgrowth in 2007..
Bringing down production costs and turning around thecompany successfully, will be the challenge, analysts said.Its a test that Ford failed.
Ford is combining both the brands since the products andmanufacturing of vehicles for Land Rover and Jaguar is sointertwined.
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Why acquire JLR?Is TATA catching a falling knifeor
Long term strategic commitment to automotivesector.
Opportunity to participate in two fast growingauto segments.
Increased business diversity across markets andproducts.
Land rover provides a natural fit for TMLs suvsegment.
Jaguar offers a range of performance/luxuryvehicles to broaden the brand portfolio.
Benefits from component sourcing,designservices and low cost engineering.
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Tata and the dream
NEED FOR GROWTH
In the past few years, the Tata group has led the growing appetiteamong Indian companies to acquire businesses overseas inEurope, the United States, Australia and Africa - some evenseveral times larger - in a bid to consolidate operations and
emerge as the new age multinationals. Tata Motors is India's largest automobile company, with revenues
of $7.2 billion in 2006-07. With over 4 million Tata vehicles plyingin India, it is the leader in commercial vehicles and the secondlargest in passenger vehicles.
COMPETITIVE ADVANTAGE
Tata Motors is vulnerable to greater competition at home. Foreignvehicle makers including Daimler ,Nissan Motor ,Volvo and MANAG have struck local alliances for a bigger presence.
Tata Motors, which has a joint venture with Fiat for cars, enginesand transmissions in India, is also facing heat from top car makerMaruti Suzuki India Ltd , Hyundai Motor , Renault and Volkswagen
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WHAT IS TATA PAYING
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Valuation of deal
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Cost synergies
Material costs and not manpower key to better margins.
Investors concerns on manpower costs misplaced
Investors apprehensive that TAMO has agreed to continuewith plants in UK
Purchasing basket offers bigger opportunity for cost reduction
It is more important to manage the material & sourcing coststo improve margins Material Cost is 4-6x the wage cost forhigh-end products such as Land Rover
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Cost synergies
Tata Group has multiple levers
Tata Auto Comp (TACO) - TATA group has a a rich ecosystemof JVs with leading players in Auto ancillary space heldthrough TACO.
TCS, Corus and Tata Technologies have varied competenciesin the Auto space
We believe an improvement of 50-70bps in EBITDA marginpossible in JLR over the next 2 years (current EBITDAmargin)
We estimate CY2007 EBITDA margin of JLR at around 6.5% This could make the acquisition PAT accretive inCY2009/FY10E
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Revenue synergies - A long-term possibility
Revenue synergies limited in the medium term (2-3 years)
In the long-run Tata Group and Tata Motors footprint inSouth-East Asia should help Jaguar/Land Rover diversify theirgeographic dependence from US (30% of volumes) and
Western Europe (55% of volumes)
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TAMO + JLR: Leverage and Valuation ratios
qLeverage increases but coverage ratios reasonable Headline Debt/Equity of TAMO would increase to 2.5x
from 1x Excluding the vehicle finance biz, leverage would go to
1.2x EBITDA/Interest remains at 5.0qTAMO is trading inline/modest discount to global
peers EV/Sales (1-yr forward) of 0.5x against 0.4x for global
peers P/E (1-yr forward) of 6.5x against 8.5x for global peers
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TAMO + LR: Proforma P&L
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TAMO + JLR: Proforma Cashflow(CY2008/FY2009E)