Tata M&a Operations

8/8/2019 Tata M&a Operations

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HOUSE OF TATA :HOUSE OF TATA :ACQUIRING A GLOBALACQUIRING A GLOBAL

FOOTPRINTFOOTPRINT

A ru n M e n o n

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( )Va ib h av V icha re 3 2 3 0 2

( )V e z o to T h e lu o 3 2 3 0 0


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Background Tetley-Tata dealBackground Tetley-Tata deal

Feb 2000: Acquisition of UK Based Tetley byTata tea

Leveraged buyout ( Tetley 3 times the size of

Tata tea) Tetley deal : 271 million pounds

70 m pounds contributed by equity and 45 mpounds by raising GDR


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Rationale behind Tetley AcquisitionRationale behind Tetley Acquisition

Growth in tea industry less in India, so need toexplore newer markets

Need to change from a commodity tea producerto a branded tea company

Tetley's Global presence and leading brand -Market leader in Britain and Canada and apopular brand in the United States, Australiaand the Middle East

Tetley not a part of any large consumer goodconglomerate ease of acquisition

Provided insulation it needs from low commodityprices in India to higher-priced and moreevolved global tea market


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Comparison of Tata Tea & TetleyComparison of Tata Tea & Tetley

(3/31/00) (3/31/01) Tata Tea Tetley

Turn Over $207 million $417 million

Operating Profit $36.0 million $42.6 million

Employees 59,740 1,100

Tea Estates 54 0

Key Markets India Britain, Canada, Australia,United States


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TATA TEA: Developing Market

TETLEY: Developed Markets

Value chain before AcquisitionValue chain before Acquisition


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Operational synergiesOperational synergies

Mergerimplication

Tata tea preacquisition

Tetley preacquisition

Consolidated postacquisition

Positionin thevalue

chain

40 %turnoverfrom packet

tea/tea bags

100 % turnoverfrom packettea/tea bags

Company has move up thevalue chain-80 % turnoverfrom packet tea/tea bags

Increasedoutsourcing

Produced 90% of the tearequirementsin house

Outsourced entiretea req. from 35countries(procurement of

3m kg of teaevery week)

70 % of Tata tea req.outsourced from 20countries ( reduction ofrisk arising out of

fluctuation in productionarising out of differentfactors

Predictable margins

Marginshighlycorrelatedwith tea

cycles

Margins were notcorrelated to teacycles

Margins hedged

Global

footprints

Domestic

operations

UK and US

accounts for bulk

Global presence


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REVENUES POST ACQUISITIONREVENUES POST ACQUISITION


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Synergies from the dealSynergies from the deal

Tata was one of the lowest cost steel producers & Coruswas fighting to keep its productions costs under control .

Tata had a strong retail and distribution network in Indiaand SE Asia. Hence there would be a powerfulcombination of high quality developed and low cost highgrowth markets

Technology transfer and cross-fertilization of R&Dcapabilities .

There was a strong culture fit between the twoorganizations both of which highly emphasized oncontinuous improvement and Ethics.

Economies of Scale.

Increase in profitability.

Backward integration for Corus and Forward integration for

Tata Steel.


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EASONS FOR ACCEPTING THE DEALEASONS FOR ACCEPTING THE DEAL

TATA STEEL .o tap European Mature Market ost of acquisition is lower than

etting up of Green field plant& arketing and distribution

.hannel ,ATA manufactures Low Value long

,nd flat steel products whileorus produce High Value

.tripped products elped TATA to feature in Top 10

.layers in world .echnology Benefit .conomic of scale orus holds number of patents and

& .D facilities

CORUS

To extend its Global reachthrough TATA.

To get access to Indian Ore

reserves, as well as virginmarket for steel.

To get access to low costmaterials.

Saturated market of Europe.

Decline in market share andprofit.


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Post AcquisitionPost Acquisition

StrategiesStrategies

Tata steel's Continuous Improvement Program Aspire withthe core values :Trusteeship, Integrity, respect for

individual, credibility and excellence. Corus's Continuous Improvement Program The Corus Way

with the core values : code of ethics, integrity, creatingvalue in steel, customer focus, selective growth andrespect for our people.

As the core values of the two companies were same so Tataused Light Handed Integration Approach.

Top management of the company remained same.

NTEGRATION EFFORT


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Pitfalls of the dealPitfalls of the deal

High value paid. Approximately 7.7 times itsEnterprise Value.

Corus EBITDA was at 8% which was much loweras compared to Tata Steels 30%.

Debt of US $ 6.14 was raised against the cashflows of Corus. It was a risky proposition.

Tatas debt equity ratio was adversely affected to2.74:1 from 1.1 which it was maintaining

earlier. Fast consumption of Tata Steels captive iron ore

reserves as production capacity increased from5.3 million ( estimated for 50 years at this

capacity) to 27 million tons of steel per annum.


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PRE-ACQUISITION OPERATIONSPRE-ACQUISITION OPERATIONS

JAGUAR LAND ROVER

Huge Loss of $105 Millionin 2000-01

Challenge of De-risking the

cyclical nature of itscommercial truckbusiness

Pressure to Internationalizebecause of Intensifyingforeign competition

Tata Motors needed todevelop more advancedproducts to stay at parwith its competitors

Product Target was mainly

on the bottom of theP ramid market.

TATA MOTORS

Ford who owned both Jaguarand Land Rover had Lost$12.6 billion in 2006

Both Jaguar and Land Roverpart of PremierAutomotive Group ( PAG ).PAG post a loss of $4.8billion loss in 2004-06

Jaguar Biggest contributor ofloss.

Strong Union served anultimatum opposing theclosing down of the threefactories by any acquiringcompany

Jaguar and Rover shared

factory in Liverpool aswell as technology and


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TATA MOTORS GROWTH STRATEGYTATA MOTORS GROWTH STRATEGY

1984 : Indias 1st LCV (407 truck)1996 : Indias 1st SUV (Safari)

1998 : Indias 1st Passenger Car (Indica)

2004 : Acquisition of Tata Daewoo, Korea

2005 : Indias first mini-truck (Ace)

2005 : Acquisition of stake in Hispano,Spain2007 : Formed an industrial JV with Fiat

2007 :JV in India with Marcopolo of Brazil

2007 : JV in Thailand with Thonburi2008 : Peoples car Tata Nano

2008 : Acquisition of Jaguar Land Rover

Growth Strategy

To consolidate position in

the market andexpand internationalfoot print throughdevelopment on newproducts by

- Leveraging inhouse capabilities

- Acquisition andstrategic collaborationsto gain complementarycapabilities


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WHY ACQUIRE JLR ?WHY ACQUIRE JLR ?

1 Long term strategic commitment to automotive sector

2 Opportunity to participate in two fast growing auto segments (premium and small cars)and to build a comprehensive product portfolio with a global footprint immediately

3 business diversity across markets and product segments

4 Unique opportunity to move into premium segment with access to world class iconicbrands

4a Land Rover provides a natural fit above TMLs Utility vehicles/SUV/Crossoverofferings for the 4x4 4a premium category

4b Jaguar offers a range of Performance/Luxury vehicles to broaden the brand portfolio

5 Sharing of best practises between Jaguar, Land Rover and Tata Motor in the future

6 Long-term benefits from component sourcing, low cost engineering and design services


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POST-ACQUISITION OPERATIONSPOST-ACQUISITION OPERATIONS

JAGUAR LAND ROVER

Total Revenue from theBrands as on 2008was US$12-13 billion

Tata Motors gets accessto technologies,especially for off-roading, such as the

Terrain Response

systems of Land Roverand other resources at

Jaguar

Tata Global by increaseby 29% at 85,114

vehicles, August 2010

TATA MOTORS

Easier Credit availability fromboth Indian as well asforeign bank to support

cost cutting measures,increase volumes and moreintensive research

New Management team withmore emphasis onimproving the companies

operation Increased Sales2010 Increase

%Jaguar 24919 31 %LandRover

67840 52 %


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Thank You

Documents

Tata M&a Operations