Durgesh Ranjan

4110012012

IIF

Jaguar: an overview

1922 - Founded in Blackpool as Swallow Sidecar company

1960 - Jaguar name first appeared

1975 - Nationalized in due to financial difficulties

1984 - Floated off as a separate co in the stock market

1990 - Taken over by Ford

Land Rover: an overview 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 $2.75 billion

TATA MOTORS: An 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.

Why was Ford selling?

The US auto major put the two marquees on the market in 2007 after posting losses of $12.6billion in 2006 - the heaviest in its 103-year history

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% YoYgrowth in 2007.

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

Why to acquire JLR?

Long term strategic commitment to automotive sector.

Opportunity to participate in two fast growing auto segments.

Increased business diversity across markets and products.

Jaguar offered a range of “performance/luxury” vehicles to broaden the brand portfolio.

Benefits from component sourcing, design services and low cost engineering

The Deal Process 12/06/2007- Announcement from Ford that it plans to sell Land Rover

and Jaguar. August 2007 - Major bidders were identifiedo 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 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

Tata and the dream

NEED FOR GROWTHIn the past few years, the Tata group had led the growing

appetite among Indian companies to acquire businesses overseas in Europe, the United States, Australia and Africa - some even several times larger - in a bid to consolidate operations and emerge as the new age multinationals.

Tata Motors was India's largest automobile company, with revenues of $7.2 billion in 2006-07.With over 4 million Tata vehicles plying in India, it was the leader in commercial vehicles and the second largest in passenger vehicles.

COMPETITIVE ADVANTAGE

Tata Motors was vulnerable to greater competition at home.

Foreign vehicle makers including Daimler, Nissan Motor, Volvo and MAN AG had struck local alliances for a bigger presence.

Tata Motors, which had a joint venture with Fiat for cars, engines and transmissions in India, was also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and Volkswagen.

Financing strategy Tata Motors could comfortably finance the acquisition

of Jaguar and Land Rover. The Indian automaker was sitting on a cash pile of over Rs 6,000 crore and generated free cash of over Rs 1,000 crore during FY07. It could easily use these reserves to raise more funds without endangering its finances.

At the end of last financial year, Tata Motors‟ debt-to-equity ratio was a low 0.56, giving it ample head room to raise more funds.

Low leverage of the auto biz provided funding flexibility

At the time financed the purchase through a $3bn, 15month bridge loan

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

It intended to refinance the loan through long-term funds

valuable stakes in group companies Owns $400m of Tata Steel at current prices

Owns stake in Tata Sons (Tata Group’s holding company) worth at least $600m

Refinancing of the loan• 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 )

For what Tata motors paid 3 modern plants in UK

2 advance design and engineering center

26 national sell companies

Intellectual property: free license to share technology with Ford

Support from ford motor credit: Ford motor credit will continue to support the sale of Jaguar and Land rover for next 12 months

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

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] 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.

6] Agreement with Unions to implement pay freeze and longer working hours (equivalent to approximately 20% reduction in labor 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.

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 would 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

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

Strengths:

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

Market is volatile and driven by new products

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

Tata’s Jaguar Land Rover Acquisition