Cross-Country Merger and Acquisition Sell-off - Jaguar and Land Rover

Presented by Shraddha Shah Pradeep Dixit

Cross-Country Merger and Acquisition Sell-off - Jaguar and Land Rover

Introduction
Jaguar Car Ltd founded in 1922, is one of the worlds premier manufacturer of luxury saloons and sports cars. Land Rover has manufactured four-wheel drive vehicles with widest range of off-road capabilities since 1948. Ford acquired Jaguar from British Leyland Ltd in 1989 for US$ 2.5 billion. Ford Motor Company (Ford) is leading automaker and the third largest multinational corporation in the automobile industries.

Setbacks
After Ford acquired Jaguar, adverse economic condition worldwide in the 1990 led to tough market condition and a decrease in the demand of luxury car. In March 1999, Ford established the PAG (Premier Automotive Group) with Aston Martin, Lincoln, Jaguar and also Volvo Cars. In September 2006, the Ford decided to dismantle the PAG. Ford review of the two brands came, as it was struggling to return to profitability in the face of fierce competition, from Asian Automaker and developing tastes for more fuel-efficient models in its key Northern American Market. These two European luxury brands had become a drag on the cash.

Particularly draining was Jaguar, into which Ford sank nearly $10 billion, trying to revive the brand, after spending $2.5 billion to buy it in a deal that closed in 1990.

Ford had got some huge problems on their owns, really huge, facing survival really on their hands. They actually did not have management capability to make success of Jaguar.

Ford was facing various issues such as:

In Jaguar and Land Rover, Ford acquired antiquated manufacturing facilities in Britain and onerous / burdensome labor pacts. Losses needed to be stemmed. Too many brands Aston Martin, Lincoln, Jaguar and Land Rover and Volvo Cars over stretched Ford. Fords Board decided to focus on core market. In 2006 Ford recorded losses of 6.5 billion. Although these losses were reduced to 1.3 billion in 2007, the Ford recognized that it needed major restructuring, if it was ever to return to profitability. The Ford had been reviewing all of its operation and announced that Ford may be more interested in the selling the two British Brand as it was in need of more cash.

Learning and Remedies

Ford sources revealed that no matter how profitable its luxury brand offshoots were, unless it focused its resources on turning around its core business, it could not hope to recover. PAG accounted for around 1 billion of losses in 2006, resulting in the sell off of first Aston Martin and Now Jaguar and Land Rover.

In June 2007, Ford announced that it was considering selling JLR Jaguar and Land Rover. Ford had finally decided to focus on its key products and markets, especially in the USA, so that it could start making a profit again. Citigroup analyst Jon Rogers said that a sale of Jaguar and Land Rover could benefit Ford, as the two divisions were not at the core of the overall business and cash from sale could be used to accelerate its North American restructuring. After failing to rebrand and integrate these two luxury brands, with its product portfolio, Ford Motors felt that sell out was the only right way to survive.

Looking for Buyer

It had become imperative and absolutely essential for Ford to shed these European luxury brands Jaguar and Land Rover. Jaguar and Land Rover needed buyer that would appreciate their heritage and could restore their glory, especially to Jaguar. The sale to the strategic buyer had been at the central to Ford strategy in order to turn the company around by refocusing the company on its core brand i.e. Ford, Mercury and Lincoln. Ford had initiated the sell- off process by having dialogues and negotiations with various global auto companies. The deal should be meaningful and beneficial to both the parties The acquired company i.e. Ford and the acquiring company.

Cross Country Merger and Acquisition

In the Acquisition Transactions, one firm buys another firm, with intent of more effectively using core competence, by making the acquired firm a subsidiary, within its portfolio of business.

Why Acquisition is important?

Increased market share. Increased speed to market. Economies of scale. Lower risk comparing to develop new products. Increased diversification. Avoid excessive competition. Benefit on account of tax shields like carried forward losses of unclaimed depreciation. Profit for Research and Development. It is faster and easier transaction. The acquirer does not experience the dilution of ownership. Learn from mistake of others. Pick holes in strategy to get the best. Redefine strategy to achieve goal.

From Ford Perspective

Ford was quite fortunate that it found strategic buyer viz Tata Motors, in the very difficult market environment. The credit crisis and general pessimistic outlook on the auto industry made it very difficult for any another auto company to close the deal. Tata Motors was very serious company, very well funded and not inexperienced in car. They were probably the best possible owner for Jaguar and Land Rover.

Actually they were probably the only company which could come in and acquire the brands. Ford also needed cash and the company was aiming to reach profitability in 2009, which could be tough in a time of declining sales and tight credit. In one of the most significant shifts of clout in the auto industry, Ford Motors had handed over the keys to its high class British Jaguar and Land Rover brands to an Indian company viz Tata Motors, in March 2008 for 1.15 billion.

Tata JIR Deal

In June 2008, Indian based Tata Motors Ltd, announced that it had completed the acquisition of the two iconic British brands Jaguar and Land Rover (JLR) from the USbased Ford Motors for US$ 2.3 billion. Forming a part of the purchase consideration were JLRs manufacturing plants, two advanced design centers in the UK, national sales companies spanning across the world, and also licenses of all necessary intellectual property rights. Tata Motors also entered into long term agreement with Ford Motor Company for supply of engines, stamping and other components to JLR. Other areas of transition support from Ford include IT, accounting and accesses to test facilities. The two companies would continue to cooperate in the areas such as design and development through sharing of platforms and joint development of technologies. Ford Motor Credit Company would continue to provide financing for Jaguar and Land Rover dealers and customers.

From Tata Motors Perspective The Acquiring Company

Tata Motors was interested in acquiring JLR, as it would reduce the companys dependence on the Indian market, which accounted for 90% of its sales. Tata Motors stood to gain on several fronts from the deal.

One, the acquisition would help the company acquire a global footprint and enter the high-end premier segment of the global automobile market. After the acquisition, Tata Motors would own the worlds cheapest car the US$2,500 Nano, and luxury marquees like the Jaguar and Land Rover. Two, 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, e.g., Indica and Safari suffered from internal noise and vibration problems. Three, this deal provided Tata an instant recognition and credibility across globe which would otherwise would have taken years. Four, 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. Five, in the long run, TATA Motors will surely diversify its present dependence on Indian markets (which contributed to 90% of Tatas revenue). Along with it, Tatas footprints in South East Asia, would help JLR to diversify its geographic dependence from US (30% of volumes) and Western Europe (55% of volumes). Tata would not have been able enter into the premium segment (>10 lakhs) in India. Tata Motors would have lacked in robust designing capabilities. Above all, at that time no other major automobile brand was available for acquisition with such designing and R & D capabilities.

Cross Country Acquisition - Tata JLR deal focus on the followings:

Advantage of cross-border acquisition. Need for growth through acquisition in foreign country. The role of acquisition as a growth strategy.