Académique Documents
Professionnel Documents
Culture Documents
GWALIOR
Submitted By:
Jitesh Maharwal (2004IPG44)
Nikhil Garg (2004IPG29)
Sunny Tyagi (2004IPG71)
Harendra Singh (2004IPG83)
12/9/2008
Merger and Acquisition
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate
finance and management dealing with the buying, selling and combining of different companies that
can aid, finance, or help a growing company in a given industry grow rapidly without having to create
another business entity.
M&A Activities in India:
In 2007, there were a total of 676 M&A deals and 405 private equity deals, in 2007, the total value of
M&A and PE deals was USD 70 billion, Total M&A deal value was close to USD 51 billion, Private
equity deals value increased to USD 19 billion
Growth Drivers:
• Globalisation and increased competition
• Concentration of companies to achieve economies of scale
• Cash Reserves with corporate
Trends:
• Cross-border deals are growing faster than domestic deals
• Private Equity (PE) houses have funded projects as well as made a few acquisitions in India
Major M&A Deals Undertaken Abroad by India Inc.
Tata steel buys Corus Plc : 12.1$ billion
Hindalco acquired novelis: 6$ billion
Tata buy jaguar and land rover : 2.3$ billion
Essar steel buys Algoma Steel: 1.58$ billion
Vodafone buys hutch : 11$ billion
POSCO to invest in building steel manufacturing plants and facilities in India by 2016
Goldman Sachs Plans investment in private equity, real estate, and private wealth management
In year 2008..
• M&A deals in India in 2008 totaled worth USD 19.8 bn
• Less compared to last year which stood at 33.1 bn $.
• Decline of M&A activity was in line with the global activity.
• Cross border M&A totaled 8.2 bn $ compared to 18.7 bn $.
Tata Motors: Acquisition of Jaguar &
Land Rover
The Deal Process: - 12/06/2007- Announcement from Ford that it plans to sell Land Rover and
Jaguar. August 2007 - Major bidders are identified
Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management
• India‟s Tata Motors and M&M arrive as top bidders ($ 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
COMPETITIVE ADVANTAGE
• Tata Motors is vulnerable to greater competition at home. Foreign vehicle makers including
Daimler, Nissan Motor, Volvo and MAN AG have struck local alliances for a bigger presence.
• Tata Motors, which has a joint venture with Fiat for cars, engines and transmissions in India, is
also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and
Volkswagen.
Analysts pick
• Analysts indicate that Tata Motors can comfortably finance the acquisition of Jaguar and Land
Rover. The Indian automaker is sitting on a cash pile of over Rs 6,000 crore and generated free
cash of over Rs 1,000 crore during FY07. It can easily use these reserves to raise more funds
without endangering its finances. 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.
• Over the next 3-4 years, Tata Motors plans to invest Rs 12,000 crore in setting up new units for
a small car, trucks and SUVs and also to expand the capacity of its existing units.
• challenge for Tata Motors. These marquee brands have very high production costs and require
phenomenally high engineering and research capabilities as they compete with likes of BMW
and Audi. “Taking over the brand is easy, bringing down production costs and turning around
the company successfully, will be the challenge,” analysts said. It‟s a test that Ford failed.
WHAT IS TATA PAYING FOR????
FINANCING WAYS
• Low leverage of the auto biz provides funding flexibility
• Currently financed the purchase through a $3bn, 15month bridge loan
– It intends to refinance the loan through long-term funds
• valuable stakes in group companies
– owns $400m of Tata Steel at current prices
– owns stake in Tata Sons (Tata Group‟s holding company) worth at least $600m
Valuation of deal :
Cost synergies –
1. Material costs and not manpower key to better margins.
Investors concerns on manpower costs misplaced
– Investors apprehensive that TAMO has agreed to continue with plants in UK
Purchasing basket offers bigger opportunity for cost reduction
– 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
Tata Auto Comp (TACO) - TATA group has a a rich ecosystem of JVs with leading players in
Auto ancillary space held through TACO.
TCS, Corus and Tata Technologies have varied competencies in the Auto space
We believe an improvement of 50-70bps in EBITDA margin possible in JLR over the next 2
years (current EBITDA margin)
- We estimate CY2007 EBITDA margin of JLR at around 6.5% – This could make the acquisition
PAT accretive in CY2009/FY10E