Tata Motors Acquisition of Jaguar&Land Rover
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Tata Motors acquired Jaguar Land Rover from Ford in 2008 to diversify into developed markets, gain synergies from Tata group resources, and improve technology. The $2.3 billion deal was financed through a $3 billion bridge loan. Tata Motors struggled to refinance the debt due to the global financial crisis but eventually paid it off through asset sales, debentures, and commercial borrowing. The acquisition made Tata Motors a global automaker but it still lacked significant market share outside of India.
Tata Motors Acquisition of Jaguar&Land Rover
- 1. TATA Acquisition of Jaguar & Land Rover
- 2. Agenda Why did TaMo acquire JLR? The Deal & its financing Profile: Tata Motors Passenger Cars Profile: Jaguar & Land Rover Key Challenges for Tata JLR Valuation: Assumptions & Model Conclusions Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 3. Why did Tata Motors Acquire JLR Diversification of Markets – Mix of Developed & Emerging Markets. Cost Synergies – Pooling of Resources of Tata group. Potential Technological improvements in existing products. Opens up US & European Markets. Brand Appreciation – TaMo joins the league of International Automobile makers. Internationalization Mix of different Takes care of –Acquiring Emerging & Cyclical industries Companies, Developed Markets. like Automobile. Resources & Assets Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 4. Cost Synergies Tata Steel Leader in automotive grade INCAT steel in the European markets Provides services like supplier programs, consulting services and 16% of revenue from auto steel global sourcing division Major customers are Enjoys “Q1” supplier status with Chrysler, Ford, GM, Honda and Ford to supply steel for Jaguar Tata Nissan INCAT and Land Rover Daimler- Steel Chrysler, FIAT JLR TCS TACO TCS Tata Auto Comp (TACO) Provides services like engineering Flagship company of TAMO’s design, manufacturing solutions and ancillary biz sourcing services Manufacturing, Engineering and Automotive division accounted for Supply chain management 15% revenues Customers include Global OEMs like Major customers are Chrysler, Ford, Ford, Daimler-Chrysler, FIAT GM Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 5. What Tata Motors Acquired Assets and Other Commitments gained by TaMO 100% stake in JLR business 3 plants in UK 2 advanced design and engineering centres 26 national sales companies Intellectual property rights Capital allowances – A guarantee of $1.1 bn Ford to support credit sales for JLR for next 12 months Pension fund contribution of $ 600 mn Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 6. How the deal was Financed $ 2.3 $ 0.7 $ 3 billion billion billion Tata Bridge paid to towards Loan Motors Ford Wcap SPV-1 Singapore SPV-1: TML Holding Pvt Ltd. SPV-2: Jaguar Land Rover Ltd. TaMo raised $ 3 billion bridge loan from Citi group and JP Morgan for a SPV-2 UK period of 15 months. $ 2.3 billion was paid directly to Ford to acquire full ownership of Jaguar & Land Rover. Rest $ 0.7 billion towards working capital. Ford Ford agreed to pay $ 600 million towards Pension funds. Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 7. This is how TaMo planned to Re-finance Right issue Equity shares: Rs 22 billion Right Issue: $ 1.8 Right Issue ‘A’ Equity billion shares: Rs 20 billion Bridge Loan $ 3 Equity Overseas $ Right Issue 5Yr 0.5% billion 500 million CPS: Rs 30 billion Debt: $ 700 million But due to extreme stock volatility, negative outlook of investors and global credit crisis, the Right issue plan eventually failed. As situation changed in Apr 2008, TaMo shifted to Plan B. Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 8. Actual Re-financing of bridge loan.. Point in Time Source Amount Jan 2009 Sale of stake in Tata steel $ 1.11 billion & Tata Teleservices to other group companies Jan 2009 Right Issue April2009 Secured Non Convertible $ 0.89 billion Debentures (NCD) May 2009 External Commercial $ 1 billion Borrowing (ECB) Refinance concluded in May 2009 Total: $ 3 billion Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 9. TaMo Closing Price & Developments 900 800 700 600 500 400 300 200 100 0 Sept 08– TaMo Jan 09 – May 09 – announces Sells Stake ECB raised Mar 08 – right in Tata $1.1 bn. Deal issue, met steel & Bridge loan Announced with failure. others refinanced. Jun 08 – Dec 08 – April 09 – Acquisition TaMo NCD raised Completes announced $0.89 bn public borrowing Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 10. Tata Motors: SWOT Analysis • Brand Equity & Legacy in Indian • Minimum Presence in Markets European & US markets • Global renowned for CV • Poor technical base as • Sound Presence in Asian compared to global leaders. Markets • Confined to Cost Focus • Strong Parent Base Strategy Strengths Weakness Threats Opportunities • Huge Investments for JLR can • Exposure to Western Markets reduce company to cashless through JLR position • Potential rise in profitability • Tata Nano Singur Plant • Tata Nano creating new Controversy can hamper markets. revenues. • The conflict of Strategies. Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 11. Tamo (Passenger Car + Commercial Vehicle + LCV) Performance Revenues TaMo (Rs 1000 Cr) ROE 2008 40 35 Ashok Leyland 20 30 M&M 24 25 20 Maruti Suzuki ROE 24 15 10 Tata Motors 23 5 18 20 22 24 26 0 2001 2002 2003 2004 2005 2006 2007 2008 Tata Motors -Close Price 1200 P/E 2008 1000 14 11.3 11.8 800 12 10.4 600 10 400 7.3 8 200 6 0 4 Date 3-Apr-07 20-Apr-06 24-May-06 28-Jul-06 27-Feb-07 10-May-07 17-Jul-07 21-Aug-07 24-Sep-07 6-Feb-06 1-Sep-06 10-Nov-06 30-Nov-07 8-Feb-08 14-Dec-06 7-Jan-08 13-Mar-06 26-Jun-06 6-Oct-06 19-Jan-07 13-Jun-07 29-Oct-07 14-Mar-08 2 0 Tata Motors Maruti Suzuki M&M Ashok Leyland Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 12. Tata Motors: Passenger Cars Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 13. Tata Motors in Passenger Car Market Category TaMo Product TaMo Mkt Shr Major Competitors A Tata Nano NA Maruti 800, Alto B Tata Indica 16% Maruti A star, Wagon-R; Hyundai Santro, Getz C Tata Indigo 12% Maruti SX4; Hyundai Verna; Honda City; D No Product 0% Honda Accord; Skoda Octavia; Toyota Corolla E No Product 0% Skoda Superb, Mercedes C class, E class, BMW 5 Series F No Product 0% Mercedes S class, BMW 7 series SUV Tata Safari, Sumo 20% M&M Scorpio, Ford Endeavor, Honda CRV, M Balero MUV No Product 0% Toyota Innova, GM tavera Currently TaMo lacks the right portfolio mix. Major improvements required to consolidate share in category B & C. TaMo will look forward to add new segments with acquisition of JLR. Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 14. Market Performance in 2007-08 Market Share (%) Market Share Lost 20 TaMo losses share to new product 15 launched by competitors. 10 Category B: Indica 5 Competitors product with better 0 engine performance & more feature Jul/07 Apr/07 May/07 Feb/07 Aug/07 Sep/07 Nov/07 Dec/07 Feb/08 Jan/07 Mar/07 Jun/07 Oct/07 Jan/08 Mar/08 hitting sales. Category C: Indigo A number of new diesel launches Market Share by Volume dented growth. Jan/08 JV with Fiat aiming at improving Oct/07 engine performance & production Jul/07 capacity Apr/07 Jan/07 0 5000 10000 15000 20000 25000 Product Launched Product Launched Hyundai i-10 (A2) Nov 2007 Maruti SX4 (A3) May 2007 Skoda Fabia (A2) Jan 2008 M&M Renault (A3) April 2007 Maruti A Star (A2) Oct 2008 Fiat Linea(A3) 2009 (E) New Products launch hitting TaMo
- 15. Tata Motors in Light Commercial Vehicle • Market Share: 24% Passenger Carrier (>5 T) • Competitor: Force Motors Passenger Carrier • Market Share: 63% ( 5-7.5T) • Competitor: Mazda • Market Share: 66% Goods Carrier (>5T) • Competitor: M&M Goods Carrier • Market Share: 66% (5-7.5 T) • Competitor: Eicher Tata Motors is the Market Leader in three of the four categories. TaMo betting on Tata Ace with indigenously developed technology, project of Rs 2 billion over next 5 years. Initial Capacity of about 70,000 units/year. Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 16. Tamo Performance in 2008 Tamo made a sales of Rs. 403 billion, up 10.1% of 2007 figures. Sales (Rs billion) Ashok Leyland However, TaMo behind in growth numbers, mostly because of slump in M&M passenger car market share. Maruti Suzuki EBITA up by 13% on 2007 figures Tata Motors compared to 18.5 % improvement in 0 100 200 300 400 500 Maruti Suzuki numbers. ROCE (%) YoY Sales Growth 25.0% Ashok Leyland 20.0% M&M 15.0% Maruti Suzuki 10.0% 5.0% Tata Motors 0.0% 0 5 10 15 20 25 30 35 Tata Motors Maruti Suzuki M&M Ashok Leyland Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 17. Land Rover Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 18. Land Rover Sales -Volumes 250000 226395 198000 Ford Acquired LR from BMW in 2000, has put 200000 162000 161000 177000 150000 substantial efforts to improve technology. 100000 Highest ever sales achieved in 2007 of about 50000 0 225000, lead by model ‘Rover Sport’. 2003 2004 2005 2006 2007 Business mainly located in Europe & US, 100% 7 11 7 11 18 contributing about 80% of sales. 90% 80% LR gradually moving to newer markets, targeting 70% 24 22 26 21 20 60% Middle East, China and other Asian economies. 50% Estimated revenues of LR are about $ 11 billion 40% 30% 60 60 60 60 52 in 2008, and expected to be profitable. 20% 10% 0% 2003 2004 2005 2006 2007 Major competitors – Toyota, Mitsubishi & GM Major Criticism – High pollution emission ROW Asia Pacific America Europe Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 19. Jaguar Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 20. Jaguar Sales by unit Volumes 140000 Jaguar was acquired by Ford in 1989 for 120000 120000 120000 90000 $ 2.5 billion to compete with Toyota Lexus. 100000 75000 80000 60000 Ford invested over $10 billion in course of time 60000 40000 to improve the production capacities. Jaguar 20000 0 has now three state of art plants in UK. 2003 2004 2005 2006 2007 However, Jaguar has never found stronghold 100% markets even in US or Europe. 90% 80% Sales eroded by all most 50% between 2004-07. 70% 42 42 36 25 25 60% Major Competitors: Audi, Mercedes & Porsche. 50% 40% 30% 54 58 60 48 50 20% New model ‘XF’ to be launched in Mar 2008, 10% 0% is the latest bet Jaguar has. 2003 2004 2005 2006 2007 ROW Asia Pacific America Europe Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 21. JLR in search of strong hold markets Land Rover Jaguar Land Rover Jaguar 7% 2% 5% 2% Audi Audi 11% 22% Merc Merc 35% 34% BMW 46% BMW 36% Model wise volume in US 2007 Model wise volume in Europe 2007 Product portfolio facelift Jaguar has lacked a high volume luxury car akin to BMW-3 series Earlier attempts with the X-type built on a Ford- Mondeo platform have not yielded results. As per industry experts Jaguar needs to clock annual volumes of 100k for operations to turn around. Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 22. Key Concerns for JLR Global Slow down After recession in US and most economies in Europe, market for luxury cars & SUV expected to soften. Emission deadline difficult to meet EU emission deadline of 130g/ kg will be difficult to meet as none of the JLR model satisfies the limit. Booming R&D costs Improving technology for market penetration & convergence with Emission norms will require an estimated $1.2 bn in next three years for JLR. Future funding of Pension fund Ford contributes $ 600 million for pension deficit. Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 23. Key Assumptions for Valuation* – taking a conservative approach Revenues of JLR expected to grow at 6% for the period. (CAGR for previous four years stands at 11.9%) Estimated growth for TaMo is taken as follow – Year Estimated Growth 2008-09 6% 2009-10 8% 2010-11 10% 2011-12 12% 2012-13 12% Assuming long term growth at 4%. Difference in cost between long term debt and short term debt is 400 basis points. Depreciation at 4.5% and Capex at 6% of Sales. Debt/Equity stands at 0.41 will be maintained after 5 years. New Equity is raised by issuing rights and warrants only. *Valuation is done considering we are in March’ 2008
- 24. Financial Valuation from perspective of the Investors Tata JLR Deal- An Investor Perspective Institute of Management Technology, Ghaziabad : Acquisition of Jaguar & Land Rover by Tata Motors
- 25. Acquisition of Jaguar & Land Rover by Tata Motors December 10, 2011 Institute of Management Technology Ghaziabad This presentation has been prepared as a part of course requirement for Mergers, Acquisitions and Corporate Restructuring, at Institute of Management Technology, Ghaziabad by the following students of second year – Post Graduate Diploma in Management, Dual Country Programme. Sumit Chugh 10DCP-042 Sumit Chugh Vatan Lunia 10DCP-046 Akash Jauhari 10DCP-056 Alok Kumar Mishra 10DCP-057 Ankit Bhardwaj 10DCP-060 Raghav Agarwal 10DCP-087