M&a project tata jlr case (final)

Academic Research Paper

Merger and Acquisition Research Report

Tata Motors and JLR Case

Submitted By: Group 2, EPGDIB VSAT 2011-12 Batch

Members Include: 1. Mukesh Dhaniya (Roll No. 36) 2. Pankaj Kotwal (Roll No. 46) 3. Rajiv Kumar (Roll No. 52) 4. Sahil Grover (Roll No. 58)

UNDER THE GUIDANCE OF Dr. Sheeba Kapil 2011-12 IIFT, DELHI

Tata JLR Case Discussion

1 Contents

Academic Research Paper

1 Pre-Merger Due Diligence ...................................................................... 1

1.1 Due Diligence ...............................................................................................1 1.2 Company Profile ...........................................................................................2 1.3 Rationale Behind the Merger ........................................................................3 1.4 Synergies......................................................................................................5

2 Post Merger Strategy .............................................................................. 6 2.1 Post Merger Initiatives ..................................................................................6

3 Financial Due Diligence.......................................................................... 7 3.1 Financial Ascertainment ...............................................................................7 3.2 Bank Consortium Funding the Merger..........................................................7 3.3 Mode of Payment .........................................................................................8

4 Critical Self Assessment ........................................................................ 9 5 Appendix................................................................................................ 10

5.1 Sources ......................................................................................................10


Privileged & Confidential. Page 1

1 Pre-Merger Due Diligence 1.1 Due Diligence

Tata Motors stood to gain on several fronts from the deal. • The acquisition would help the company acquire a global footprint and enter the

high-end premier segment of the global automobile market • Tata also got two advance design studios and technology as part of the deal – the

company gets access to latest technology which would also allow Tata to improve their core products in India, for eg, Indica and Safari suffered from internal noise and vibration problems

• This deal provided Tata an instant recognition and credibility across globe which would otherwise would have taken years



1.2 Company Profile

TATA MOTORS Tata Motors, part of the Tata Group, one of the largest business conglomerates in India with a presence in over 80 countries and a work force of around 290,000 people. Tata Motors is the largest automobile company in India with gross revenue of Rs.330.93 billion in 2007-08. Tata Motors is also the second largest bus manufacturer and the fourth largest truck manufacturer in the world. Tata Motors unveiled the cheapest car in the world, the Tata Nano, priced at around US$ 2,500, in early 2008. Tata Motors Limited, formerly known as TELCO (TATA Engineering and Locomotive Company), is a multinational corporation headquartered in Mumbai, India. It is India's largest passenger automobile and commercial vehicle manufacturing company and a midsized player on the world market with 0.81% market share in 2007 according to OICA data. Part of the Tata Group, and one of the world's largest manufacturers of commercial vehicles. The OICA ranked it as the world's 19th largest automaker, based on figures for 2007. as well as the second largest automaker of commercial vehicles. Established in 1945, when the company began manufacturing locomotives, today it is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world’s fourth largest truck manufacturer, and the world’s second largest bus manufacturer. Tata Motors has its manufacturing base in Jamshedpur, Pantnagar, Lucknow, Ahmedabad and Pune in India as well as manufacturing facilities in Argentina, South Africa and Thailand. The company manufactured its first commercial vehicle in 1954 in collaboration with Daimler-Benz AG, which ended in 1969. Tata Motors is a dual-listed company traded on both the New York Stock Exchange and the Indian Stock Exchange (where it is a component of the Sensex index). Tata Motors was listed on the NYSE in 2004, and in 2005 it was ranked among the top 10 corporations in India with an annual revenue exceeding INR 320 billion. In 2004, it bought Daewoo's truck manufacturing unit, now known as Tata Daewoo Commercial Vehicle, in South Korea. It also, acquired a 21% stake in Hispano Carrocera SA, giving it controlling rights in the company. In March 2008, it finalised a deal with Ford Motor Company to acquire their British Jaguar Land Rover (JLR) business, which also includes the Rover, Daimler and Lanchester brand names. and the purchase was completed on 2 June 2008.



Jaguar Land Rover JLR 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 cars, while Land Rover manufactured high-end SUVs. Jaguar 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 unfavourable connotations of the SS initials. Jaguar cars are designed in an engineering centre at their headquarters in Coventry, England and are manufactured in one of three English Jaguar plants; Castle Bromwich in Birmingham, Halewood near Liverpool and Gaydon in Oxfordshire. Following several subsequent changes of ownership since the 1960s, Jaguar was listed on the London Stock Exchange and became a constituent of the FTSE 100 Index, which

1.3 Rationale Behind the Merger

The acquisition of Jaguar Land Rover enabled Tata to acquire internationally recognized brands with a strong heritage and global presence, and increases Tata Motors product and market diversity. JLR also will help Tata Motors expand and diversify their current international sales market, allowing them to reduce reliance on the Indian market. Land Rover provides Tata Motors an opportunity to broaden their existing portfolio of UV, SUV and crossover offerings. Land Rover’s products in the all-terrain vehicle segment are complementary to Tata’s products in terms of features, technology and price positioning and as such, allow them to offer a wide range of vehicles that satisfies various consumer needs. Additionally, Jaguar’s premium product offerings will provide Tata with immediate entry into the luxury performance car segment. The acquisition of Jaguar Land Rover also enables Tata to leverage Jaguar Land Rover’s technology and engineering expertise. For example, Jaguar Land Rover’s technological capabilities in petrol engines, Four Wheel Drive technology and Aluminium BIW (Body in White) technology will help Tata further develop and strengthen their existing engineering capabilities. Through the acquisition, Tata also gain research and development capabilities of Jaguar Land Rover’s strong engineering workforce and its two advanced design centers in the UK



To summarize, some of the reasons behind the merger are as follows: 1. Immediate entry to the luxury performance car and premium all-terrain vehicle

segments 2. An improvement in the global market position through a combination of resources

and strengths 3. Strengthening of technological and product development/ innovation capabilities to

address changing market trends 4. Sharing of best practices in manufacturing and quality assurance systems and

processes 5. Enhanced human capital and managerial talent 6. Potential operational synergies



1.4 Synergies Some of the Synergies that exist are listed in the figures below:



2 Post Merger Strategy

2.1 Post Merger Initiatives

Post Merger, several cost rationalization 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

a. Voluntary retirement to 600 employees b. Agency staff reduced by 800 c. Offered leaves to 300 workers of Bromwhich and solihull plant d. 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



3 Financial Due Diligence 3.1 Financial Ascertainment

On June 2, 2008, Tata Motors completed the acquisition of Jaguar Land Rover from Ford for a purchase consideration of US$ 2,300 million on cash free and debt free basis. Jaguar Land Rover Limited, Tata Motors indirect subsidiary, paid the purchase consideration. As part of the acquisition, the Company acquired the global businesses relating to Jaguar Land Rover including three vehicle manufacturing facilities, one veneer production facility, two advanced design centers, 26 national sales companies, intellectual property rights (including perpetual royalty free licenses), and brands and trade marks. The purchase consideration of US$ 2,300 million, on cash free and debt free basis, paid by Jaguar Land Rover Limited was financed through a capital contribution of US$ 400 million and a portion of the proceeds from a US$ 3,000 million short term bridge loan facility extended to Jaguar Land Rover Limited. The purchase consideration was based on an agreed level of working capital as defined in the sale and purchase agreement entered into with Ford. In addition, US$ 100 million was paid by TML Holdings Pte Limited towards fees and other acquisition expenses consisting of legal and advisory fees, due-diligence and related expenses, structuring fees, underwriters fees and other expenses in relation to the short term bridge loan, and other acquisition related expenses. A net cash position of US$ 93 million was estimated for Jaguar Land Rover as at the date of acquisition. This amount represents additional net cash over the purchase consideration basis and was paid additionally by Jaguar Land Rover Limited. The same was financed out of the proceeds of the short term bridge loan. In addition, a final adjustment relating to the actual cash, debt and working capital position (as defined in the sale and purchase agreement) of Jaguar Land Rover on the date of the acquisition, based on a final completion statement of Jaguar Land Rover agreed between Jaguar Land Rover Limited and Ford, of US$ 131 million is payable by Jaguar Land Rover Limited to Ford. This represents additional net working capital/ cash available with Jaguar Land Rover over the agreed levels.

3.2 Bank Consortium Funding the Merger

The US$ 3,000 million short-term bridge loan facility extended to Jaguar Land Rover Limited in connection with the acquisition of Jaguar Land Rover was pursuant to a credit



facility agreement dated March 13, 2008 with an initial group of arrangers including the following: • Bank of Tokyo-Mitsubishi UFJ Limited • Citigroup Global Markets Asia Limited • ING Bank N.V., Singapore Branch • J.P. Morgan Securities (Asia Pacific) Limited • Mizuho Corporate Bank Limited • Standard Chartered Bank • State Bank of India • BNP Paribas, Singapore Branch TML and TML Holdings Pte Limited were also obligors to the aforementioned credit facility agreement, and TML provided a guarantee for the facility. Citicorp International Limited acted as the Facility Agent.

3.3 Mode of Payment

Jaguar Land Rover Limited utilized US$ 1,900 million of the aforementioned Short Term Bridge Loan towards part payment of the purchase consideration for the acquisition of Jaguar Land Rover from Ford on cash free and debt free basis. In addition, a net cash position of US$ 93 million, representing additional net cash over the purchase consideration basis, was estimated for Jaguar Land Rover as at the date of the acquisition. Jaguar Land Rover Limited paid this amount additionally out of the proceeds of the short term bridge loan. Further, US$ 700 million from the proceeds from the short term bridge loan was utilized by Jaguar Land Rover Limited for a short term working capital loan to its subsidiary, Land Rover. The balance proceeds from the Short Term Bridge Loan are intended to be utilized by Jaguar Land Rover Limited towards the ongoing operational/ contingency requirements of Jaguar Land Rover.



4 Critical Self Assessment

According to us, the brand JLR has not fallen into the wrong hands, looking at Tata Motors legacy, the company is remolding the future of these two international luxury brands. The sales of Jaguar have picked up in India and Tata Motors has been successful in reinvigorating the luxury car segment in India. Tata Motors set-up an integration committee with senior executives from the JLR and Tata Motors, to set milestones and long-term goals for the acquired entities – this strategy has paid off since sales of Jaguar has picked up and so has the image of Tata Motors post the merger and the Nano launch. One of the major problems for Tata Motors could be the slowing down of the European and US automobile markets. We expect that the company would address this issue by concentrating on countries like Russia, China, India, and the Middle East. The figure below shows, the Tata Motors advantage for becoming a world class automotive company:

The companies investment plans, new designs with a scope for alternate energy usage, the new target markets and retaining the best both production units and talents, hiring fresh talents from around the world is definitely going to make the company gain a strong foothold globally.



5 Appendix

5.1 Sources

MAGAZINES: 1. Business world (March 31, 2008, April 20, 2009) 2. Business Today (April 5, 2008) 3. India Today (April 18, 2009) 4. 4p’s (April, 2008) 5. Business & Economy (April, 2008) NEWSPAPERS: 1. Times of India 2. Economics Times 3. The Telegraph WEBSITES: 1. Wikipedia.com 2. ICICIdirect.com 3. Mergersindia.com 4. Mergerdigest.com 5. Deustchbank.com 6. ICMR.com 7. Businessstandard.com 8. Tatamotors.com 9. Jaguarlandrover.com

Documents

M&a project tata jlr case (final)