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MACR - Tata Jaguar Land Rover

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Text of MACR - Tata Jaguar Land Rover

MERGER & ACQUISITION CASE STUDY TATA & JAGUAR, LAND ROVER

MERGER & ACQUISITIONS CASE STUDY TATA & JAGUAR, LAND ROVERPRESENTED TO:MR. P. K. GUPTALECTURERPRESENTED BY:NIDHI ANN MATHAI02211403912

TATA MOTORS OVERVIEWTATA 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 1945Listed 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.Subsidiaries- JAGUAR CARSLAND ROVERTATA DAEWOO COMMERCIAL

As of 2012 Profit of US$ 2.28 billion and total assets of US$ 28.05 billion2

JAGUAR OVERVIEWJLR was a part of Ford's Premier Automotive Group (PAG) and were considered to be British icons.Jaguar was involved in the manufacture of high-end luxury carsJaguar Cars Ltd. ( better known simply as Jaguar) is an automaker from England,United Kingdom that manufactures luxury and executive motor car.Sir William Lyons founded jaguar as the Swallow Sidecar Company in 1922, originally making motorcycle sidecars before switching to passenger cars. The name was changed to Jaguar after the second world war due to the unfavorable connotations of the SS initials.

1922 - Founded in in Blackpool as Swallow Sidecar company 1960 - Jaguar name first appeared in 19351975 - Nationalized in due to financial difficulties1984 - Floated off as a separate co in the stock market- Taken over by Ford4LAND ROVER OVERVIEWBritish car manufacturer founded in 1948 as a marquee of the Rover Company. Known for superior off-road and road performance1976 1 million cars running on the roadIn 1994 Rover Group is taken over by BMW Sold to FORD MOTORS for $ 2.75 b in 2000.Used by military for projects and expeditions, Safe but less reliable, Makeover in recent times Land Rover manufactures high-end SUVs.

Ford Motors acquired Jaguar 1989 for US$ 2.5 billion and Land Rover in 2000 for US$ 2.75 billionAs of 2013 Profit of 1.215 billion5Reports said losses at Jaguar stood at USD 715 million in 2006.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% YoY growth in 2007.Ford was combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar was so intertwined.Fords reasons for the sale

RATIONALE FOR ACQUISITIONProvide significant potential for revenue synergy including giving TATA greater international distribution broader product range and better customer service skills Tata gains access to world class engineering capabilityStrengthens relationship b/w Tata steel and motoring businessResearch and development facilities at a reasonable price.Help TATA in Component sourcing, design services and low cost engineering.Corus being the major supplier of automotive steel to JLR and other automobile industries in USA and Europe, acquiring JLR would result in a cost synergy for TATA motors

To make a global impact as buying these brands at a lower rate now, will give better value later on.Eases entry in the European market which it has been eyeing for long. Reduce dependence on the Indian market that accounted for 90% of its sales.Opportunity to spread business across different customer segments.To compete with the current market leaders in luxury brands BMW, Audi, Mercedes.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.

Tatas objectivesTata 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. Reduce the company dependence on the Indian market which accounted for 90% of its salesOpportunity to spread its business across different customer segmentAt 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 in luxury brands BMW, Audi, MercedesPublicity on an international scaleAccess to large distribution networkJLR had many new models lined up for next 3 years, so no much work just profitsStrong R & D culture and facilities812/06/2007- Announcement from Ford to sell Land Rover and Jaguar.August 2007 - Major bidders identified Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management Indias Tata Motors and M&M top bidders ($ 2.3b & $ 1.9b) 03/01/2008 Ford announced Tatas as the preferred bidders 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors. 02/06/2008 The acquisition completed

The deal - process100% stake in Jaguar & land Rover Business - TAMO has acquired the business & initially they will be operated independently of the partner.3 Plants in UK - These are well invested plants2 advanced design & engineering center - 4-5000 engineers engaged in testing ,prototype design & powertrain Engineering , development & integration26 National sales company - Both existing national sales companies of jaguar/land rover & also those that are carved out of current Ford operationIntellectual property rights - This covers all key technologies to be transferred to JLR & perpetual royalty free license on technologies shared with FordCapital Allowance - A minimum guaranteed amount of $1.1 bn which will help managing in Tax going forwardSupport from Ford Motor Credit - Ford Motor Credit will continue to support the sales of JLR for around next 12 monthsPension Contributed by Ford - Ford will contribute $ 600 mn of the Pension Fund.

Fund Raising (7200 Crore)Ordinary Equity Shares - FullVoting 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)9Capital structureTata 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 mannerRs 1.92 billion Underwriting agreement with JM financial consultantsRs 1.75 billion was raised through a deposit scheme from the publicAdditional subscriptions by promoter companies- Tata sons, Tata capital and Tata Investment Ltd.

No significant change proposed to the businesses by Tata. They claimed that staff, trade unions and the UK government had been kept informed about the proposed takeover and supported the move

The deal has been endorsed by trade unions, which secured a commitment from Tata to continue with JLRs production plans until the end of 2011. This includes development of new models

TATA charted out plans to raise Rs. 4200 crore via rights issue and around US$ 600 million through Global Depository Receipt (GDR)10In $ millionparticulars TAMO JLR consolidatednet tangible assets251022464756net intangible assets11120102121vehicles financing receivables2935 -2935net current assets-57-107536cash638 -638trade investments233 -233pension asstes -696696other assets3297300total assets6373514212215warranty liability and other provisions48926673156pension liability -1919deferred tax liability238 -238shareholders equity231424562314capital assets - -156minority interest30 -30debt3302 -6302total liability6373514212215Balance sheetLow leverage of the auto biz provided funding flexibilityAt the time financed the purchase through a $3bn, 15month bridge loanAdditional 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 fundsvaluable stakes in group companiesOwns $400m of Tata Steel at current pricesOwns stake in Tata Sons (Tata Groups holding company) worth at least $600m

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.11 TAMO JLR SPV Cons..sales1021014214 -24424cost synergies - - - -EBITDA1196935 -2131EBITDA margin11.70%6.60% -8.70%depreciation218699 -917interest14042 -182other income105 - -105PBT944194 -1138interest cost of acquisition -225225proforma PBT 944194-225913impact on PBT-3% - - -In $ millionP&L A/cThe amount was repaid in following mannerRs 1.92 billion Underwriting agreement with JM financial consultantsRs 1.75 billion was raised through a deposit scheme from the publicAdditional 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 )12The profits for the first quarter for the year 2008-09 were at 3.26 billionQ3 the sales of passenger vehicles went down to 41,287 units a drop of 14.14% Tata Motors cut production across different categories.Following Cost Rationalization initiatives were taken to improve cash flows:Single shifts and down time at all three UK assembly plants.Supplier payment terms extended from 45 to 60 days in line with industry standard.Receivables reduced