Project Report on

MERGER AND ACQUISITION OF TATA MOTORS AND JLR

In partial fulfillment of requirement for the

Award of Degree of M.Com

Subject:

STRATEGIC MANAGEMENT

Submitted By:

Mr. Vicky Singh

Roll No. 08

M.Com. Part – I, Semester - II

Under the Guidance of:

Prof. Mr. Sunil Lalchandani

SMT. CHANDIBAI HIMATHMAL MANSUKHANI COLLEGE

ULHASNAGAR – 421003

UNIVERSITY OF MUMBAI

2014 – 2015

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This is to certify that, Mr. Vicky Singh of M.Com Part – II, has successfully

completed the project in “Strategic Management” titled “Mergers And

Acquisitions of Tata Motors And JLR” under my guidance for the academic year

2014-15. The information submitted is true and original as per my knowledge.

Mr. Sunil Lalchandani

(Internal Guide)

Prof. Gopi Shamnani Dr. Padma V. Deshmukh

(Coordinator, M.Com) (I/C Principal)

________________

External Examiner

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DECLARATION

I, Mr. Vicky Singh student of SMT. CHANDIBAI HIMATMAL MANSUKHANI

COLLEGE, ULHASNAGAR studying in M.Com Part – I, Semester – II, hereby

declare that I have completed this project on “Mergers And Acquisitions of Tata

Motors And JLR” for the subject “Strategic Management” in the academic year

2014-15.The information submitted is true and original to the best of my

knowledge.

_______________

Mr. Vicky Singh

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ACKNOWLEDGEMENT

The satisfaction, which accompanies the successful completion of the project, is

incomplete without the mention of a few names. I take this opportunity to

acknowledge the efforts of the many individuals who helped us make this project

possible.

I would like to express our sincere gratitude to our Prof. Sunil Lalchandani for

giving us an opportunity to work under esteemed guidance which helped me to

improve upon our lacunae during the project research. I am very grateful to him for

providing us with every possible opportunity & freedom to learn and explore. I am

deeply indebted to him for suggestions, constant inspiration and encouragement.

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EXECUTIVE SUMMARY:

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$ 2.3

billion. Forming a part of the purchase consideration were JLR's manufacturing plants, two

advanced design centers in the UK, national sales companies spanning across the world, and also

licenses of all necessary intellectual property rights.

There was widespread skepticism in market over an Indian company owning the luxury brands.

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. Market

conditions were extremely tough, especially in the key US market. Tatas needed to invest a lot in

brand building to make JLR profitable. Onset of recession not only made investment look

mistimed, but also started wiping out the JLR market.

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INDEX

Sr.No Particulars Page No

1 Introduction 08

2 About Tata Motors 10

3 About Ford Motor Company 15

4 About Jaguar Land Rover 18

5 Why Is Ford Selling? 26

6 The Reason Behind Decision To Acquire 29

7 The Deal Process 30

8 Post Merger 34

9 Fund Raising 37

10 SWOT ANALYSIS 39

11 Business Transformed Over Last Five Years 40

12 Conclusion 42

13 Bibliography 43

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INTRODUCTION

MERGERS AND ACQUISITIONS

The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate

strategy, corporate finance and management dealing with the buying, selling and combining of

different companies that can aid, finance, or help a growing company in a given industry grow

rapidly without having to create another business entity.

WHAT DOES MERGER MEAN?

The combining of two or more companies, generally by offering the stockholders of one

company securities in the acquiring company in exchange for the surrender of their stock

INVESTOPEDIA EXPLAINS MERGER

Basically, when two companies become one. This decision is usually mutual between both firms.

WHAT DOES ACQUISITION MEAN?

A corporate action in which a company buys most, if not all, of the target company's ownership

stakes in order to assume control of the target firm. Acquisitions are often made as part of a

company's growth strategy whereby it is more beneficial to take over an existing firm's

operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the

acquiring company's stock or a combination of both.

INVESTOPEDIA EXPLAINS ACQUISITION

Acquisitions can be either friendly or hostile. Friendly acquisitions occur when the target firm

expresses its agreement to be acquired, whereas hostile acquisitions don't have the same

agreement from the target firm and the acquiring firm needs to actively purchase large stakes of

the target company in order to have a majority stake.

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In either case, the acquiring company often offers a premium on the market price of the target

company's shares in order to entice shareholders to sell. For example

1. Tata Steel‟s mega takeover of European steel major Corus for $12.2 billion. The biggest

ever for an Indian company. This is the first big thing which marked the arrival of India

Inc on the global stage. The next big thing everyone is talking about is Tata Nano.

2. Vodafone‟s purchase of 52% stake in Hutch Essar for about $10 billion. Essar group still

holds 32% in the Joint venture.

3. Hindalco of Aditya Birla group‟s acquisition of Novellis for $6 billion.

4. Ranbaxy‟s sale to Japan‟s Daiichi for $4.5 billion. Sing brothers sold the company to

Daiichi and since then there is no real good news coming out of Ranbaxy.

5. ONGC acquisition of Russia based Imperial Energy for $2.8 billion. This marked the turn

around of India‟s hunt for natural reserves to compete with China.

6. NTT DoCoMo-Tata Tele services deal for $2.7 billion. The second biggest telecom deal

after the Vodafone. Reliance MTN deal if went through would have been a good addition

to the list.

7. HDFC Bank acquisition of Centurion Bank of Punjab for $2.4 billion.

8. Wind Energy premier Suzlon Energy‟s acquistion of RePower for $1.7 billion.

9. Reliance Industries taking over Reliance Petroleum Limited (RPL) for 8500 crores or

$1.6 billion.

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TATA MOTORS

Tata Motors is India's largest automobile company, with consolidated revenues of Rs 2, 33,662

crore (USD38.6 billion) in 20013-14. Through subsidiaries and associate companies, Tata

Motors has operations in the UK, South Korea, Thailand and Spain. Among them is Jaguar Land

Rover, the business comprising the two iconic British brands. It also has an industrial joint

venture with Fiat in India.

“It is a leader in Commercial Vehicles in each segment and among the top players in Passenger

Vehicles with winning products in the compact, midsize car and utility vehicle segments”.

Tata Motors is the country's market leader in commercial vehicles and among the top three in

passenger vehicles. It is also the world's fourth largest manufacturer of medium / heavy

commercial vehicles, and the second largest bus manufacturer. Tata cars, buses and trucks are

being marketed in several countries in Europe, Africa, the Middle East, South Asia, South East

Asia and South America.

The company, formerly known as Tata Engineering and Locomotive Company, began

manufacturing commercial vehicles in 1954 with a 15-year collaboration agreement with

Daimler Benz of Germany. It has, since, developed Tata Ace, India's first indigenous light

commercial vehicle, Tata Safari, India's first sports utility vehicle, Tata Indica, India's first

indigenously manufactured passenger car, and the Nano, the world's cheapest car.

The foundation of the Company‟s growth over the last 68 years is a deep understanding of

economic stimuli and customer needs, and the ability to translate them into customer-desired

offerings through leading-edge R&D. With over 4,500 engineers, scientists and technicians the

company‟s Engineering Research Centre, established in 1966, has enabled pioneering

technologies and products. The Company today has R&D centres in Pune, Jamshedpur,

Lucknow, Dharwad in India, and in South Korea, Italy, and the UK.

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Areas Of Business:

Tata Motors makes passenger cars, multi-utility vehicles and light, medium and heavy

commercial vehicles.

Passenger cars: The Company launched the compact Tata Indica in 1998, the sedan

Indigo in 2002 and the station wagon Indigo Marina in 2004. Tata Motors also distributes

Fiat‟s cars in India.

Utility vehicles: The Tata Sumo was launched in 1994 and the Tata Safari in 1998.

Commercial vehicles: The commercial vehicle range extends from the light two-tone

truck to heavy dumpers and multi-axle vehicles in the above 40-tonne segment.

Passenger buses: The Company also manufactures and sells passenger buses, 12-seaters

to 60-seaters, in the light, medium and heavy segments.

Joint Ventures, Subsidiaries, Associates:

Tata Motors has joint ventures with Marcopolo, the Brazil-based maker of bus and coach bodies,

and with Fiat Auto (to build a commercial vehicle at Fiat's facilities in Córdoba, Argentina).

Other associates include:

Tata Daewoo Commercial Vehicle Company, a 100-per cent subsidiary of Tata Motors in

the business of heavy commercial vehicles.

Tata Motors European Technical Centre is a UK-based, 100-per cent subsidiary engaged

in design engineering and development of products.

Telco Construction Equipment Company makes construction equipment and allied

services. Tata Motors has a 60 per cent holding; the rest is held by Hitachi Construction

Machinery Company, Japan

Tata Technologies provides specialized engineering and design services, product

lifecycle management and product-centric information technology services

Tata Motors (Thailand) is a joint venture between Tata Motors (70 per cent) and

Thonburi Automotive Assembly Plant Co (30 per cent) to manufacture and market the

company‟s pickup vehicles in Thailand.

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Tata Cummins manufactures high horsepower engines used in the company‟s range of

commercial vehicles.

HV Transmissions and HV Axles are 100-per cent subsidiaries that make gearboxes and

axles for heavy and medium commercial vehicles.

TAL Manufacturing Solutions is a 100-per cent subsidiary that provides factory

automation solutions and designs and manufactures a wide range of machine tools.

Hispano Carrocera is a Spanish bus manufacturing company in which Tata Motors has a

21-per cent stake.

Concorde Motors is a 100 per cent subsidiary retailing Tata Motors‟ range of passenger

vehicles.

Tata Motors Finance is a 100 per cent subsidiary in the business of financing customers

and channel partners of Tata Motors.

Tata Motors' plants are located at Jamshedpur (eastern India), Pune and Sanand (west), and

Lucknow and Pantnagar (north). Tata Motors and Fiat have set up a common manufacturing

facility at Ranjangaon, near Pune.

Tata Motors is a part of the Tata Group manages its share-holding through Tata Sons. Tata

Motors is the largest multi-holding automobile company in India and it is the fourth largest truck

producer in the world. In addition, Tata Motors is also the second largest bus producer in the

world, with the revenues of US$ 8.8 billion in the financial year 2008. Since its establishment in

1945, Tata Motors has grown significantly in the past 60years with the strategies of joint venture,

acquisition and launched new products in different market segments (i.e. passenger cars,

commercial vehicles and utility vehicles).

A significant breakthrough for Tata was the development and commercialization of the truly

Indian cars and they are Tata Indica (1998) and Tata Indigo (2002). Tata Motors has experienced

many joint ventures with Daimler Benz, Cummis Engine Co. Inc., and Fiat and successfully

acquired Daewoo Commercial Vehicle Co. Ltd. In the year 2008, there were two most

significant events which have had a momentous impact on the scale of the Company‟s operations

and its global image. The launching of Tata Nano, the world cheapest car and the acquisition of

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Jaguar and Land Rover, the two iconic British brand have made Tata Motors well known to the

people in the world.

TATA MOTORS – A SNAPSHOT

• TATA GROUP is 150 year old, Previously Tata Engineering and Locomotive Company,

Telco.

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• India's largest passenger automobile and commercial vehicle.

• Tata Motors was established in 1945

• Listed on the New York Stock Exchange in 2004.

TATA MOTORS – Company Profile

• 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 COMMERCIA

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FORD MOTOR COMPANY

The Ford Motor Company (commonly

referred to as simply Ford) is an American

multinational automaker headquartered in

Dearborn, Michigan, a suburb of Detroit. It

was founded by Henry Ford and

incorporated on June 16, 1903. The

company sells automobiles and commercial vehicles under the Ford brand and most luxury cars

under the Lincoln brand. Ford also owns Brazilian SUV manufacturer, Troller, and Australian

performance car manufacturer FPV. In the past it has also produced tractors and automotive

components. Ford owns a 2.1% stake in Mazda of Japan, an 8% stake in Aston Martin of the

United Kingdom, and a 49% stake in Jiangling of China. It also has a number of joint-ventures,

two in China (Changan Ford Mazda and Ford Lio Ho), one in Thailand (Auto Alliance

Thailand), one in Turkey (Ford Otosan), and one in Russia (Ford Sollers). It is listed on the New

York Stock Exchange and is controlled by the Ford family, although they have minority

ownership. It is described by Forbes as "the most important industrial company in the history of

the United States."

Ford introduced methods for large-scale manufacturing of cars and large-scale management of an

industrial workforce using elaborately engineered manufacturing sequences typified by moving

assembly lines; by 1914 these methods were known around the world as Fordism. Ford's former

UK subsidiaries Jaguar and Land Rover, acquired in 1989 and 2000 respectively, were sold to

Tata Motors in March 2008. Ford owned the Swedish automaker Volvo from 1999 to 2010. In

2011, Ford discontinued the Mercury brand, under which it had marketed entry-level luxury cars

in the United States, Canada, Mexico, and the Middle East since 1938.

Ford is the second-largest U.S.-based automaker (preceded by General Motors) and the fifth-

largest in the world based on 2010 vehicle sales. At the end of 2010, Ford was the fifth largest

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automaker in Europe. Ford is the eighth-ranked overall American-based company in the 2010

Fortune 500 list, based on global revenues in 2009 of $118.3 billion. In 2008, Ford produced

5.532 million automobiles and employed about 213,000 employees at around 90 plants and

facilities worldwide.

The company went public in 1956 but the Ford family, through special Class B shares, still retain

40 percent voting rights.

Henry Ford's first attempt at a car company under his own name was the Henry Ford Company

on November 3, 1901, which became the Cadillac Motor Company on August 22, 1902, after

Ford left with the rights to his name. The Ford Motor Company was launched in a converted

factory in 1903 with $28,000 in cash from twelve investors, most notably John and Horace

Dodge (who would later found their own car company). During its early years, the company

produced just a few cars a day at its factory on Mack Avenue in Detroit, Michigan. Groups of

two or three men worked on each car, assembling it from parts made mostly by supplier

companies contracting for Ford. Within a decade the company would lead the world in the

expansion and refinement of the assembly line concept; and Ford soon brought much of the part

production in-house in a vertical integration that seemed a better path for the era.

Henry Ford was 39 years old when he founded the Ford Motor Company, which would go on to

become one of the world's largest and most profitable companies, as well as being one to survive

the Great Depression. As one of the largest family-controlled companies in the world, the Ford

Motor Company has been in continuous family control for over 100 years.

After the first modern automobile was already created in the year 1886 by German inventor Carl

Benz (Benz Patent-Motorwagen), more efficient production methods were needed to make the

automobile affordable for the middle-class; which Ford contributed to, for instance by

introducing the first moving assembly line in 1913.

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In 1908 Ford introduced the first engine with a removable cylinder head, in the Model T. In

1927, Ford introduced the Model A, the first car with safety glass in the windshield. Ford

launched the first low priced V8 engine powered car in 1932.

The creation of a scientific laboratory in Dearborn, Michigan in 1951, doing unfettered basic

research, lead to Ford's unlikely involvement in superconductivity research. In 1964 Ford

Research Labs made a key breakthrough with the invention of a superconducting quantum

interference device or SQUID.

Ford offered the Lifeguard safety package from 1956, which included such innovations as a

standard deep-dish steering wheel, optional front, and, for the first time in a car, rear seatbelts,

and an optional padded dash. Ford introduced child-proof door locks into its products in 1957,

and in the same year offered the first retractable hardtop on a mass-produced six-seater car. The

Ford Mustang was introduced in 1964. In 1965 Ford introduced the seat belt reminder light.

With the 1980s, Ford introduced several highly successful vehicles around the world. During the

1980s, Ford began using the advertising slogan, "Have you driven a Ford, lately?" to introduce

new customers to their brand and make their vehicles appear more modern. In 1990 and 1994

respectively, Ford also acquired Jaguar Cars and Aston Martin. During the mid- to late 1990s,

Ford continued to sell large numbers of vehicles, in a booming American economy with a

soaring stock market and low fuel prices.

With the dawn of the new century, legacy healthcare costs, higher fuel prices, and a faltering

economy led to falling market shares, declining sales, and diminished profit margins. Most of the

corporate profits came from financing consumer automobile loans through Ford Motor Credit

Company.

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JAGUAR LAND ROVER

Jaguar Land Rover Automotive PLC is a British multinational automotive company

headquartered in Whitley, Coventry, United Kingdom, and a subsidiary of Indian automaker

Tata Motors. Its principal activity is the design, development, manufacture and sale of vehicles

bearing the Jaguar and Land Rover (including Range Rover) marques. Both marques have long

and complex histories prior to their merger going back to the 1940s, first coming together in

1968 as part of the ill-fated British Leyland conglomerate; and later existed independent of each

other as subsidiaries of BMW (in the case of Land Rover), and Ford Motor Company (in the case

of Jaguar); Ford later acquired Land Rover from BMW in 2000 following the break-up of the

former Rover Group; which was effectively the remainder of British Leyland.

Jaguar Land Rover has been a wholly owned subsidiary of Tata Motors since 2008, when the

latter acquired it from Ford. It sold a total of 462,678 vehicles during 2014, comprising 381,108

Land Rover vehicles and 81,570 Jaguar vehicles.

Jaguar Cars 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.

A core subsidiary of Tata Motors

Represents approximately two-thirds of TML‟s revenues

Chairman, Vice-Chairman and CEO of TML sit on Jaguar Land Rover‟s board of

directors.

TML and Tata Group have supported JLR during the downturn

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Synergies

Access to a wider pool of financing banks and sources of funding as part of TML

Access to long-established operational and sales expertise of TML in India

JLR has established a product development operation in India

Since April 2011, Freelander vehicle kits have been assembled by TML in a complete

knock down facility in India.

A Growing Technical Capability:

Comprehensive vehicle Product Development capability (5 new models in last 5 years)

Petrol engine engineering and power train application capability for petrol and diesel

Product Development staff c.3,400

Flexibility to balance resources across product portfolios at different stages of their life

cycles

An industry leader in aluminium body structure and all-terrain technology

Leveraging architectures for multiple vehicles

Growing advanced research capability

Winners of 2008 Queen‟s Award for Innovation for Land Rover Terrain Response

System.

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Areas Of Business

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.

History

The Jaguar Cars and Land Rover businesses were first united under a single entity by Ford Motor

Company in 2002. Ford had acquired Jaguar Cars in 1989 and Land Rover from BMW in 2000.

In 2006 Ford purchased the Rover brand name and logos from BMW for around £6 million. This

reunited the Rover and Land Rover brands for the first time since the Rover group was broken up

by BMW in 2000, and also brought Jaguar into the same stable as Rover/Land Rover more than

15 years after it was spun out from the former British Leyland in 1984.

Jaguar and Land Rover, two of the most iconic British brands, were sold by Ford to Tata Motors

in 2008. Here is a potted history of both:

1922 - Jaguar Cars Limited, a luxury car manufacturer based in Coventry, is founded as the

Swallow Sidecar Company by two motorcycle enthusiasts.

1945 - Swallow Sidecars changes its name to Jaguar, and the first Jaguars with high-performance

engines are produced.

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1947 - Land Rover, a British all-terrain vehicle manufacturer, rolls out its first vehicle,

apparently based on an American jeep from the Second World War. The Land Rover's distinctive

bodies were lightweight and rustproof, and designed to be field-serviced, giving the vehicles a

reputation for longevity in tough conditions.

Although Land Rover became famous for bringing 4x4 capabilities to civilian vehicles, since the

company's beginning all Series and Defender models have been used in a military capacity as

well.

1950s - Jaguar makes its name with a series of elegant sports cars and premium saloons, such as

the XK 150.

1961 - Arguably the most famous sports car of all time, the Jaguar E-type, first hit the road.

1968 - Jaguar merges with British Motor Corporation, subsequently taken over by Leyland,

which itself was later nationalised as British Leyland.

1970 - Land Rover launches the Range Rover.

1984 - Jaguar is split off from British Leyland and listed on the London Stock Exchange.

1988 - Land Rover launches the Discovery.

1989 - Jaguar is acquired by Ford.

1997 - Land Rover launches the Freelander.

1990s - Jaguar undergoes a programme of modernisation and expansion that ensured the

broadest product range in the company's history.

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2000 - Ford buys Land Rover. The brand then beomes closely linked with Jaguar, with some

models sharing components and production facilities.

2008 - Ford sells Jaguar Land Rover to Tata Motors, India's biggest vehicle maker, for $2.3bn

(£1.5bn), after almost ten months of negotiations. It never made a profit from Jaguar.

2009 - As car sales tumbled around the world, Jaguar Land Rover was forced to seek state loan

guarantees from then Business Secretary Lord Mandelson. It later walked away from

negotiations after the Government demanded control over the company's strategy.

2010 - In the final quarter of 2010, sales of Jaguar Land Rover cars rise 11pc to 63,155, with

particularly strong performances in North America, Russia, and China. Company drives towards

a £1bn annual profit.

2011 - Jaguar Land Rover announced that it would be hiring an additional 1,500 staff at its

Halewood plant, and signed over £2 billion of supply contracts with UK-based companies, to

enable production of its new Range Rover Evoque model.

2011 - The company confirmed that it would be investing £355 million in the construction of a

new engine plant at the i54 business park near Wolverhampton, central England, to manufacture

a family of four-cylinder petrol and diesel engines. In November 2011 Jaguar Land Rover

announced that it would be creating 1,000 new jobs at its Solihull plant, a 25 per cent increase in

the size of the workforce at the site.

2012 - Jaguar Land Rover announced the creation of 1,000 new jobs at its Halewood plant, and a

shift to 24-hour production at the plant. In the same month, Jaguar Land Rover and the China-

based carmaker Chery agreed to invest an initial US$2.78 billion in a new joint venture the

activities of which will include the manufacture of Jaguar and Land Rover vehicles and engines,

the establishment of a research and development facility, the creation of a new automobile

marque, and sales of vehicles produced by the company. Jaguar Land Rover plans to create 4,500

manufacturing and engineering jobs in the UK over the next five years.

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2013 - Jaguar Land Rover announced an additional 1,700 jobs and £1.5 billion investment at its

facility in Solihull. The money will be spent on designing systems to allow the chassis of future

models to be made out of aluminium. The first of these models will be a new mid-sized sports

saloon car to be introduced in 2015.

2013 - Jaguar Land Rover announced plans to establish a new research and development center

in the UK. The National Automotive Innovation Campus will be based at the University of

Warwick. Jaguar Land Rover will invest £50 million in the facility with additional funding from

Tata Motors, the University and the UK government.

2014 - The Wall Street Journal reported that Jaguar Land Rover, sold a record 425,006 vehicles

in 2013 as demand for its luxury vehicles increased in all major markets including in China,

North America and Europe.

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THE LAND ROVER STORY

The original 1948 Land Rover was ingeniously designed and engineered for extreme capability

and strength. With extremely robust construction and characteristics such as short front and rear

overhangs, it drove off the production line ready to take on some of the world‟s toughest terrain.

Today these qualities are as significant a part of what makes a Land Rover vehicle unique as they

were 60 years ago.

The Land Rover was the product of continuous evolution and refinement throughout the 1950s

and 1960s with improved stability and a tighter turning circle. It was a period in which Land

Rover took the lead in the emerging market for four-wheel drive vehicles. As a tough, reliable

mobility platform, countless organisations came to depend on Land Rover vehicles to get

personnel and equipment into the most challenging situations…and then safely out again. From

organisations such as Born Free Foundation to The Royal Geographical Society and Biosphere

Expeditions - we enter the second decade of the 21st century with them still relying on Land

Rover.

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Heritage

In keeping with the forward-thinking philosophy that founded Land Rover, a radical, entirely

new product was introduced in 1970 and created its very own vehicle category. This overnight

sensation was the original Range Rover. It had all the capability of a Land Rover with the

comfort and performance of an on-road car.

This culture of innovation has developed ever since with both Land Rover and Range Rover

vehicles: new models, more refinement, more innovative technology, more efficiency and fewer

emissions. And it continues with initiatives such as e_Terrain Technologies (which improves the

environmental performance of vehicles by reducing CO2 emissions), Sustainable Manufacturing

and CO2 Offsetting. Land Rover will remain at the forefront of advanced design – the new small

Range Rover is a testament to the vision that takes the company forward and keeps it at the

cutting edge of technology and engineering.

KEY ISSUES

Ford acquired Jaguar for $2.5 billion in 1989.

Ford acquired Land Rover for $2.75 billion in 2000.

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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WHY IS FORD SELLING

Reports said that losses at Jaguar stood at USD 715 million.

Jaguar was not performing well as it was unable to provide any profit for Ford due to

high manufacturing costs in United Kingdom

The wellbeing of Land Rover's profit, on the other hand, was boost up by the record sale

of 226,000 vehicles, an 18% year over year growth in 2007

"Bringing down production costs and turning around the company successfully will be

the challenge,” analysts said

That Ford failed to reduce production costs as major proportion of cost is material cost

and they unable to bought cheaper materials from suppliers

This however is very different if Tata Motor takes the ownership because they are

utilizing country‟s vast natural resources. The rationale to acquire JLR

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Ford close to announcing sale of Jaguar and Land Rover

Ford Motor Co., eager to raise cash starting a difficult 2008, is in final discussions with one

bidder, the Indian conglomerate Tata Group, to sell its Jaguar and Land Rover brands and a sale

is expected to be completed soon.

Tata has 98 companies in a variety of industries and has been rumoured to be the front-runner for

some time.

There is still a considerable amount of work to do and, while no final decision has been made,

we will proceed with further substantive discussions with Tata Motors over the forthcoming

weeks with a view to securing an agreement that is in the best interests of all parties concerned,"

Lewis Booth, executive vice president of Ford of Europe and the Premier Automotive Group,

said in a statement.

The Premier Automotive Group, created in 1999 to serve as the automaker's luxury vehicle

division, would essentially be dissolved by a sale of the two legendary luxury brands.

Former Ford Chief Executive Officer Jacques Nasser, who was one of the bidders for Jaguar and

Land Rover as head of One Equity Partners, assembled most of PAG during his reign from 1999

to 2001.

At one time, Ford's Premier Automotive Group controlled Aston Martin, Jaguar, Land Rover and

Volvo. Lincoln was also part of the division for a brief time, before Dearborn reclaimed control

of it in 2002, amid concerns of neglect.

But Ford sold Aston Martin in March 2007 for £430 million, and it was clear Jaguar and Land

Rover would be sold together as Ford decided to raise cash to save its ailing North American

business.

Both Jaguar and Land Rover are based in Britain and they share management, engineering,

manufacturing and distribution resources. .

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Volvo is the only non US brand in the group now retained by Ford, and it is widely expected that

Ford will work to further integrate with the company. For example, the new Taurus relied

substantially on engineering work done by the Volvo team.

While some analysts have speculated Jaguar and Land Rover could fetch as much as £4 billion in

a sale, other estimates, from Merrill Lynch & Co., are more conservative for the combined sale,

from £0.7 billion to £0.8 billion.

That would be substantially less than Ford paid for the two brands, which were acquired during

more financially healthy times. Ford bought Jaguar for £1.3 billion in 1989 and Land Rover for

£1.4 billion in 2000.

But Ford has made it clear that it would shed noncore assets in an effort to raise cash as it tries to

restore profits to its troubled North American operations by 2009. That money-losing division

for the United States, Canada and Mexico, caused Ford to post a record loss of .6 billion in 2006.

Ford's so-called Way Forward turnaround plan calls for closing 10 plants, eliminating more than

40,000 jobs and revamping the company's line-up of Ford, Mercury and Lincoln products.

Tata Motors has proven excellence over the years through continuous strong financial results,

market expansion, acquisition, joint ventures and improvement and introduction of new products,

it seems to have a promising future. But it failed the expectation as the company was in trouble

right after the acquisition of Jaguar and Land Rover (JLR) in June 2008 due to the arrival of

global financial crisis. The bridge loan of US$ 3 billion which used to fund the acquisition of

JLR was due on June 2009 and yet at the end of the year 2008, Tata was only able to repay the

US$ 1billion. The declining revenues and a tight credit conditions was hurting the company‟s

cash flow.

Page 29

THE REASON BEHIND DECISION TO ACQUIRE

Long term strategic commitment to automotive sector.

Opportunity to participate in two fast growing auto segments (premium and small cars)

and to build a comprehensive product portfolio with a global footprint immediately.

Increased business diversity across markets and product segments.

Unique opportunity to move into premium segment with access to world class iconic

brands

Land Rover provides a natural fit above TML‟s Utility Vehicles/SUV/Crossover

offerings for the 4x4 premium category

Jaguar offers a range of “Performance/Luxury” vehicles to broaden the brand portfolio

Sharing of best practises between Jaguar, Land Rover and Tata Motors in the future

Long-term benefits from component sourcing, low cost engineering and design services.

Page 30

THE DEAL PROCESS

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

August 2007 - Major bidders are identified

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

Management

India's Tata Motors and M&M arrived as top bidders ($ 2.05b & $ 1.9b)

03/01/2008 – Ford announces Tatas as the preferred bidders

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.

£ 1 billion aid package by British Government .( out of total £ 2.3 billion )

Page 31

Jaguar and Land Rover are now officially Indian-owned. The sale of the two iconic British

brands was completed today, and ownership has now passed from Ford to Tata in exchange for

$2.3bn in cash (£1.17bn). The sale means Jag/LR is debt-free, with none of the money used to

fund the purchase being offset against the pair‟s worth.

The sale gives Tata the ownership of Jaguar and Land Rover, all the necessary intellectual

property rights, the manufacturing plants, two design centres and the sales chain. Agreements

have also been signed for long-term use of Ford engines and future co-operation on hybrids and

other powertrain developments. Ford has also coughed up around $600m for Jag/LR‟s pension

coffers.

The official handover ceremony took place at Gaydon, with Ratan Tata and new Jag/LR CEO

David Smith present. David Smith had been acting CEO of the company since Geoff Polites

passed away in April 2008.

Smith leaves his full time position as Jag/LR‟s chief financial officer. At today's ceremony, he

said: „We are very pleased with the association with Tata Motors. We look forward to a

sustained bright future for the company and its stakeholders.‟

THE REAL PICTURE:

Consumer demand plummeted

Credit lines were frozen

Automotive sector in India suffered contraction in demand

Launch of Nano delayed

Tata Motors reeling under a huge debt burden

Page 32

PROBLEMS IN THE DOMESTIC MARKET:

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

ANALYSIS:

Long term strategic commitment to automotive sector.

Opportunity to participate in two fast growing auto segments- Luxury cars and all terrain

vehicles.

Enhanced human capital and managerial talent.

Improvement in global market position through a combination of resources and strengths.

Sharing of best practices in manufacturing and quality assurance systems and processes

Benefits from component sourcing, design services and low cost engineering

COMPETITIVE ADVANTAGE:

Tata Motors is vulnerable to greater competition at home. Foreign vehicle makers

including Daimler, Nissan Motor, Volvo and MAN AG have struck local alliances for a

bigger presence.

Tata Motors, which has a joint venture with Fiat for cars, engines and transmissions in

India, is also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor,

Renault and Volkswagen

Page 33

VALUATION OF DEAL:

A] Cost synergies:

1] Material costs and not manpower key to better margins.

Purchasing basket offers bigger opportunity for cost reduction

It is more important to manage the material & sourcing costs to improve margins –

Material Cost is 4-6x the wage cost for high-end products such as Land Rover.

2] Tata Group has multiple levers

Tata Auto Comp (TACO) - TATA group has a a rich ecosystem of JVs with leading

players in Auto ancillary space held through TACO.

TCS, Corus and Incat have varied competencies in the Auto space

B] Revenue synergies - A long-term possibility:

In the long-run Tata Group and Tata Motors footprint in South-East Asia should help

Jaguar/Land Rover diversify their geographic dependence from US (30% of volumes) and

Western Europe (55% of volumes)

Page 34

POST MERGER:

Following Cost Rationalisation initiatives were taken to improve cash flows:

1. Single shifts and down time at all three UK assembly plants.

2. Supplier payment terms extended from 45 to 60 days in line with industry standard.

3. Receivables reduced by £133 million from 38 to 27 days.

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

5. Labour 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.

6. Agreement with Unions to implement pay freeze and longer working hours (equivalent to

approximately 20% reduction in labour costs.)

7. Engineering and capital spending efficiencies.

8. Fixed marketing and selling costs reduced in line with sales volume.

9. Reduction in all other non-personnel related overhead costs.

Page 35

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

Tata‟s core commercial vehicles market in India is also suffering from slower sales

Extremely high manufacturing costs in Britain

Eliminated more than 2,200 jobs

BENEFITS:

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

Reduce the company dependence on the Indian market which accounted for 90% of its

sales

Increase sales in emerging markets

Page 36

Reduce dependence on mature markets

Opportunity to spread its business across different customer segment.

At the price staring from 63 lakh and going upto 93 lakh, it seems Tata has just got the

right place to compete with the current market leaders – BMW, Audi, Mercedes.

Publicity on an international scale

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

Component sourcing, engineering and design benefits

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

Strong R & D culture and facilities

Component sourcing, engineering and design benefits

Page 37

FUND RAISING

Ordinary Equity Shares

Full Voting Right(2200 Crore)

A-Class Equity Shares

1 Vote for every 10 A-Class Equity Shares(2000 Crore)

This is the first time a major Indian Co. is raising money by issuing shares with

differential voting rights

5 Year 0.5% Convertible Preference Shares

Optionally convertible into A equity shares after 3years but before 5years from the date

of allotment(3000 Crore)

India‟s largest automaker Tata Motors is on a fundraising spree as it faces increased capital

expenditure for expanding its product development pipeline.

The Mumbai-based company is expected to raise an additional Rs 300 crore through the sale of

bonds carrying a 9.35% coupon rate that is expected to hit the market shortly.

Apart from capital expenditure, the funds are will be also used for general corporate purposes, a

Tata Motors spokesperson confirmed.

The latest fundraising will push up its total fundraising activity to Rs 13,700 crore so far this

year.

Page 38

Just over a week ago, Tata Motors successfully raised $750 million (about Rs 4,600 crore) in its

second fund raising activity this year, for which it got $4.2 billion in orders for issue of senior

unsecured notes.

This was followed by the issue of senior notes of $500 million (Rs 3,000 crore) by its two UK-

based luxury brands Jaguar Land Rover. The issue was done to fund JLR's ongoing growth and

capital spending plans.

In May this year, the company's wholly owned-subsidiary TML Holdings raised $300 million

(about Rs 1,800 crore) through an issue of fixed-interest debt securities. Last year, TML

Holdings, which also owns Jaguar and Land Rover, raised S$350 million through senior fixed

notes.

Earlier in January this year JLR issued bonds to raise GBP 400 million (Rs 4,000 crore), due in

2022.

Tata Motors intends to use a bulk of the October bond sales proceeds to refinance existing

external commercial borrowing (ECB) debt and to meet capital expenditure plans and

investment.

The company will spend about Rs 3,500 crore – Rs 4,000 crore on capex at a standalone level

this year, up from Rs 3,094 crore last year on capex, design and development of products.

With the recent launch of its compact sedan Zest, the company is gearing up to launch its next

offering – the Bolt hatchback – based on the same vehicle architecture in the final quarter of this

financial year. Also in the works is a new compact sports utility vehicle, a more powerful Nano,

a refreshed Safari Storme, besides several upgrades in its commercial vehicle range.

Page 39

SWOT ANALYSIS

Strength:

Tata‟s strong management capability

Strong monetary base to invest

Weaknesses:

Jaguar‟s declining sales record

Inexperience of handling such luxury brands

Opportunities:

Support from Ford in terms of Technology,Engine, IT, Accounting

Adding up of luxury brands in the product line

Access to European Market

Threats

Market is volatile and driven by new products

Strong presence of competitors like Mercedes, BMW, Lexus and Infinity

Recommendations:

Keep acquisition structurally separate

Maintain its identity

Hunt for synergies in selected areas

o Procurement synergies

Prevent their own antecedents from clouding established brands

Share operational Know-how

Operational Autonomy

Page 40

BUSINESS TRANSFORMED OVER LAST FIVE YEARS

JAGUAR:

Cessation of vehicle assembly operations at Browns Lane

Halewood shared with Land Rover

Workforce rationalisation (c.1,900 employees 2004-2007)

Working capital actions (stock reductions – dealer and company)

Back-office integration with Land Rover – SG&A efficiencies

Residual value management

Engineering efficiencies

Material cost reductions

Launched new range of diesel engines

Refocused marketing and communications around Beautiful Fast Cars

Launch of XK & XF and more in pipeline

Significant improvement in underlying results, net revenues and cost structure

Jaguar sales for the month were 4,794, higher by 5%,

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LAND ROVER:

Improved efficiency and quality at Solihull

Workforce rationalization (c.2,200 employees 2004-2007 )

Working capital actions (stock reductions – dealer and company)

Engineering efficiencies

Material cost reductions

Adoption of Jaguar petrol engines and new range of diesel engines with Jaguar

Launch of new Discovery, Range Rover Sport and new Freelander.

Growth in new markets – Russia, China

Quality improvement actions

Profitable for the last three years

Land Rover sales were 16,340, higher by 45%

Page 42

CONCLUSION

India‟s GDP growth continued to be below 5% and Industrial growth remained in negative

territory. Consequently, the Indian auto industry witnessed a decline in both passenger vehicles

and in commercial vehicles segment by 4.7% and 22.4% respectively. For most of last year, the

economy was hamstrung by rising inflation and high interest rates, leading to relatively low

consumer interest in buying new vehicles, and, in many cases, postponement of purchase. In the

later part of the year, reduction in excise duty and partial lifting of mining bans did help in

recovery of sentiment, but only to a limited extent. High delinquencies in vehicle financing led to

tightening of lending norms by financiers, which badly impacted the sales of small commercial

vehicles and passenger cars. Tata Motors domestic business, in this tough environment, lost

market share in both commercial vehicles and passenger vehicles business. While the

competition in both the segments remained quite aggressive with almost all the players resorting

to huge discounting, Tata Motors‟ approach was cautious and responsible. As integral part of this

approach, the Company focused on keeping inventory levels low in order to reduce the burden

on its channel partners. On the product front, the company showcased several impressive new

products at the Auto Expo ‟14, with a lineup that included Tata Bolt and Tata Zest, due to be

launched in the coming months. Both the products have created high levels of excitement among

the potential customers. The new Prima LX and Ultra range in commercial vehicles also

showcased great promise to be category leaders. They aptly demonstrate Tata Motors‟

technological capabilities and the company‟s pursuit to offer world-class products and

experience to its customers. To ensure long-term competitiveness of Tata Motors, the company

also took several steps under the Horizo next strategy- new products, quality improvement and

enhancement of the consumer experience- that will help improve sustainable profitability of the

business in long-term. The company has steadily progressed in all these areas and is inculcating a

culture which is intolerant to poor quality and absolutely committed to customer delight.

Page 43

BIBLIOGRAPHY

http://www.jaguar.in/

http://www.landrover.in/

http://www.tatamotors.com/investors

Tata Motors Annual Report 2013-14