Tata motors acquisition of jaguar
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Transcript of Tata motors acquisition of jaguar
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