Presentation

on
Merger & Acquisition

Presented by:
1. Ankit Srivastava – JL15PGDM017
2. Apurv Pandey – JL15PGDM020
3. Deepak Mishra – JL15PGDM036
4. Himanshu Gopal – JL15PGDM053
5. Noopur Mukherjee – JL15PGDM078
Ian Callum
(Director of Design, Jaguar): 2008

“We have shown Tata our new model lines and the planned product
cycle. The two national cultures appear to fit together very well and
Tata is being very respectful about what we are doing.”
• Jaguar Cars bought by Ford in 1989
• Land Rover bought by Ford from BMW for $1.4bn in
1989
• A difficult relationship between the UK firm and its
US owners
• Jaguar fell into heavy losses whilst owned by Ford
(reaching up to $600million per year)
• However, Ford invested heavily in new model
development
• One of India’s largest private conglomerates - used to
investing in the UK
• Bought Tetley Tea in 2000
• Bought Corus Steel - a big supplier to JLR - in 2007
• Tata Motors - was already India’s third largest car-
maker, but struggling with a poor image and
hampered by rising raw material costs.
• Company was looking for diversification before
acquisition
Details of TATA-JLR Deal
12/06/2007- Announcement from Ford that it plans to sell
Land Rover and Jaguar.
August 2007 - Major bidders are identified
Likely buyers: Tata Motors, M&M, Ceribrus capital
Management, TPG Capital, Apollo Management
India’s Tata Motors and M&M arrive as top bidders ($ 2.05b
& $ 1.9b)
03/01/2008 – Ford announces 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 is complete
About the deal

1. India based Tata Motors acquired JLR from US based

Ford motors in March 2008.
2. Cost of acquisition was US $2.3 billion (Rs.10258 Cr.).
3. Tata financed the takeover with $3bn of new long-term
loans.
4. The price paid by Tata was approximately half of what
Ford paid to buy Jaguar and Land Rover. Ford had
continued to incur heavy losses in Jaguar as it failed to
turn the business around.
About the deal

5. The deal took over a year to agree - which may have helped
with the post-merger integration. Tata recognised that it would
continue to need support from Ford who are a main supplier of
car components to the two brands.
6. 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.
7. The deal has been endorsed by trade unions, which secured a
commitment from Tata to continue with JLR’s production
plans until the end of 2011. This includes development of new
models.
 STRENGTH WEAKNESS
-Tata’s strong management capability
-Strong monetary base to invest
-Synergy due to Corus, TACO and TCS
-Experience in growing market like -Inexperience in Handling luxury
India automobile brand
-New productOPPORTUNITIES
development and brand THREATS
building
-Demand experience
of luxury automobiles in Volatility in market driven by new
growing markets like India and products
China Strong presence of competitors like
-Support from Jaguar in Mercedes, BMW, Lexus and Infinity
Technology Receding sales and brand image
-Complete product line with High interest rate Investment riskier
addition of luxury brands and costlier
-Access to European and American
Market
 Why is Ford selling?
• Reports said losses at Jaguar stood at USD 715 million in 2006.
Jaguar has been a dog i.e. it has not been 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..
• Bringing down production costs and turning around the
company successfully will be the challenge,” analysts said. It
was a test that Ford failed.
• Ford is combining both the brands since the products and
manufacturing of vehicles for Land Rover and Jaguar is so
intertwined.
What persuaded Tata to go ahead..
1. Tata gains access to world-class engineering capability
2. Jaguar and Land rover have mixed reputation but hold good brand value
still.
3. Strengthens relationship between Tata’s steel and motoring businesses.
4. Tata getting greater international distribution, broader product range and
better customer service skills.
5. JLR had very good automobile plants.
6. Good customer satisfaction ranking and new models in pipeline. – Jaguar
XJ, Jaguar XF & upcoming Land Rover which convinced Tata that JLR was
on the process of change.
7. Market diversification.
8. TATA’s footprints in South East Asia will help JLR do diversify its
geographic dependence from US (30% of volumes) and Western Europe
(55% of volumes).
 Downfall of market and Tata
after deal
• Soon after acquisition company saddled with a debt of
Rs.21900 Cr.
• Recession(2009) brought down value of Tata Motors to
Rs.6504 Cr.
• Consolidated net loss was Rs.25000 Cr. In year end with prior
year profit of Rs.2000 Cr.
• Before deal JLR was in pre tax loss of Rs.1800 Cr.
Strategy adopted by TATA

• Trimming of workforce.
• Managing cash & liquidity on hour on hour basis.
• Putting team of young managers in charge & daily reviews.
• Forming 10-11 cross functional teams to contain costs.
• Divesting stakes in group companies to raise cash for JLR.
• Tata secures a £340million loan from the European
Investment Bank to support JLR through recession.
Years Later - Tata revived…
1. Two years later JLR accounted for 2/3rd of Tata Motors
Business and company recorded huge jump in profit.
2. US subsidiary started generating a cash profit for past 4
quarters.
3. Debt to equity came down to 1.6 times at consolidated level
from 4.5 times in December 2009 end.
4. Soaring sales of Jaguar and Land Rover cars have
helped Indian firm Tata Motors to a huge rise in profits
(up 41% on 2010). JLR arm saw sales rise 37%, helped
by selling 32,000 of its new Range Rover Evoque.
5. China overtakes the UK as JLR’s biggest market.
 Benefits from the deal
• The acquisition would help the company to enter in to the high end
premier segment of the global automobile market.
• Tata also got two advance design studios and technology as part of
the deal. This would provide Tata Motors access to latest
technology which would also allow Tata to improve their core
products in India,
• The cost competitive advantage as Corus was the main supplier of
automotive high grade steel to JLR and other automobile industry
in US and Europe. This would have provided a synergy for TATA
Group on a whole.
• In the long run TATA Motors will surely diversify its present
dependence on Indian markets (which contributed to 90% of
TATA’s revenue). Along with it due to TATA’s footprints in South
East Asia will help JLR do diversify its geographic dependence
from US (30% of volumes) and Western Europe (55% of volumes).
Cost synergies
Investors concerns on manpower costs misplaced
• It is more important to manage the material & sourcing
costs to improve margins
• Material Cost is 4-6x the wage cost for high-end
products such as Land Rover
Cost synergies – Tata Group has multiple levers
• TATA group has a rich ecosystem of JVs with leading
players in Auto ancillary space
• TCS, Corus and Tata Technologies have varied
competencies in the Auto space
Problems faced by Tata Motors due to
acquisition of Jaguar Land Rover
• Problem 1: Lack of access to credit to repay the bridge
loan of US$3 Billion:Tata Motors was facing problem in cash
liquidity and have negative working capital after the acquisition
of JLR.
• Problem 2: Global financial crisis:Global financial crisis
has severely impacted the global automobile industry especially
the luxury cars segment.
• Problem 3:Increasing materials and fuel prices have
slow the demand of vehicles: Due to the impact of tighter
money supply with higher interest rate, there will be meteoric
rise in fuel and materials (e.g.: steel, tyres) price. High fuel price
has caused Tata Motors to feel the heat of slowing demand.
Problems faced by Tata Motors due to
acquisition of Jaguar Land Rover
• Problem 4: Downfall in share prices and brand image
effect:Share price dropped drastically and affect its global
Image As the debt market was frozen, Tata Motors turn to the
equity market to raise fund.
• Problem 5:Turnover of Jaguar Land Rover:The
turnaround of Jaguar Land Rover has become part of corporate
concern. For the 12-month period ended Dec 31, 2010, the auto
maker's revenue was more than 9.2 billion pounds ($15
billion), and net income for that period was $1.5 billion.
• In the 10 months post-acquisition, sales volumes plunged 32%
and the unit recorded a loss of 281 million pounds ($461
million).
Debt-Equity
FinancialRatio analysis  
Pre acquisition 0.31
Post acquisition 0.67
Change % 116
ROCE (%)  
Pre acq 50.13
Post acq 23.27
Change % -53.6

net profit margin  

pre acq 20.46
Post acq 21.36
Change % 4.4
P/E  
Pre acq 8.72
Post acq 11.35
Change % 30.2
ROE(%)  
Pre acq 41.7
Post acq 25.97
Change % -37.7
EPS  
Pre acq 61.51
Post acq 61.06
Change % -0.7
Interpretation
• Debt equity ratio on post acquisition increase because Corus debt
was high it was GBP1.6b to buy Corus and so its debt is almost 116%
more than in pre acquisition.
• ROCE shows that post acquisition is very less as compared to pre
acquisition it has negative percentage because company has short
term returns after one year it will improve in the long run.
• Net profit margin has very less change as profit is not much affected.
• P/E increases in post acquisition by 30.2% which show high future
cash flow.
• ROE is decreasing by 37.7 which show that it has more debt than
equity. EPS has a very minor change.
• Operating profit margin is reduced by 9.1% which shows that it has
low profit.
 TAMO + JLR: Leverage and Valuation ratios
Proforma
Valuations (TAMO
+JLR)
Share price 630

O/S shares 385

Mkt cap ($m) 6,070

Net Debt ($m) 5,664 This debt includes $3bn raised for
acqusisition
EV ($m) 11,735

EV ($m) 0.48 The current valuations are inline

or discount to global peers
EV/EBITDA (1-yr 5.5
forward)
P/E (1-yr forward) 6.65
Managerial analysis
• Cost Rationalisation initiatives:
• Single shifts at all 3 plants
• Supplier payment terms extended from 45 to 60
days
• Receivables reduced by £133 million from 38 to
27 days
• Inventory reduced by £217 million from 70 to 50
days
conclusion
Thank You