House of Tata

Acquiring a Global Footprint

Group 6
1502048 - Bholanath Mallick
1502051 - Chandan Kumar Das
1502054 - Chiranjeev Nag
1502096 - Kundan Kumar
1502136 - Prathamesh D. Kesarkar
1502152 - Ravina Gupta
1502180 - Satwik Varma
1502193 - Shrikant Patil
1502229 - Varun Kumar Gupta
1502236 - Vivek Kumar
1502239 - Yogesh Khairnar
1502240 - Yogesh Yeole
 Feb TATA Sons & TATA Tea acquired Tetley group of United Kingdom
2000 Acquisition Value was $ 433.6 Million with 100 % stake

July
2003 VSNL acquired Gemplex of United States
Nov VSNL acquired US based Tyco Global network for $ 130 Million
2004

Oct TATA tea acquired US based firm good earth corporation for $ 31 Million
2005

March
2004 Daewoo commercial vehicle acquired by TATA Motors for $ 102 Million
Feb TATA steel acquired Singapore based Natsteel Asia for $285.4 Million
2005
TATA Group Recent Acquisitions
TATA steel a group company acquired UK based
Corus in the year 2007
TATA group had to pay around $ 12.1 Billion for
this deal
The main competitor was Companhia siderugica
Nacional (CSN) a Brazilian firm which laid TATAs
to pay 33.6% more than the initial bid.
After the acquisition share price was down by
About Jaguar
10.7%& Land Rover
Land Rover & Jaguar were British automotive
brands owned by Ford Motor company
These were the western luxury car brands
Jaguar was making a loss and TATA Motors along
with Mahindra & Mahindra was keen to acquire
this firm
Land Rover & Jaguar have their own technology
Tata Group : Overview
Global Business group with history of 139 years
Product and services in over 150 countries
Employee count : 660,800
Operations in over 100 countries
Group Revenue : $103.51bn
67.3% of revenue generated from outside INDIA
Tata Group : Rise to
power
Founded as trading firm in 1868 by Jamsetji Nusserwanji Tata
1877 : Started Empress Mills, textile venture setup in Nagpur
1892 : Jamsetji Tata estbd. the JN Tata Endowment. It was the
first of a multitude of philanthropic initiatives by the Tata group
1903 : Taj Mahal Hotel, Mumbai. Costed 4 crores at that time,
Was first building to be lit by electricity. During world war 1 it
was converted to a 600 bed hospital. Taj had Mumbais first ever
license bar
1904 : Death of Jamsetji Nusserwanji Tata, the chairmanship of
the Tata group passed to the elder of his two sons, Sir Dorab Tata
1907 : Sir Dorab Tata estd the first private steel company, 7
years later the first steel plant was estd in Jamshedpur.
1911 : Tatas established the IISC Bangalore
1912 : Tatas started the 8 hour work schedule in steel plants
and also started TATA provident fund
 By the time of Sir Dorab Tatas death in 1932, the Tata
group had consolidated in businesses
Entered in new areas, notably insurance and the
production of soaps, detergents and cooking oil.
Sir Dorab was succeeded as chairman of the Group by Sir
Nowroji Saklatwala.
In 1938, following Sir Nowrojis demise, 34-year-old JRD
Tata (left) was appointed as the new chairman.
JRD Tata led the group for the next 53 years
1932, Tata Aviation Service, the forerunner to Tata Airlines
and Air India, Indias national carrier, took to the skies.
From 13 companies (1938) JRD expanded portfolio to 300
in 1991 ( subsidiary and associate companies included)
Tata Group : Consolidation

0 0 0 0
1 2 3 4
Ratan Tata took over Some companies were Through 1990s costs Group developed
the reins in 1991 as divested others were as well as employee brand equity scheme
the chairman organized around ranks were cut and Under this group
Prioritized improving seven sectors quality of products & companies were
the competitiveness & Information system, services were required to pay for the
streamlining the engineering, upgraded. use of Tata brand
operating companies, materials, chemicals, Group worked to make Sought to increase
revamped the groups consumer products, each of its businesses Tata Sons stake in
struggling steel and Energy & Services economic value add group companies from
motor companies positive minority to 26% to
prevent any hostile
takeover
Tata Group : Consolidation (Contd)

0 0 0 0
5 6 7 8
Centralized This structure was Aggregate Market value Indias largest private
management put in place to better 1996 : $8.2 billion sector employer.
organization was coordinate strategy 2007 : $60 billion Revenues $28.8
created to help and leverage its In 2007, Tata group had billion in 06-07. 6
oversee operating combined financial 96 operating companies largest operating
companies. strength and Sectors : Steel, IT companies: Tata
1. Group executive reputation. consulting, hotels, motors, Tata Steel,
office This was essential to automobiles, TCS, Tata Power,
face a more communication, Tea, Telecom provider
2. Group corporate Watches, Chemicals VSNL, Tata chemicals
center competitive business
environment accounted for 77.6%
Both the groups of groups collective
consisted of revenues
longstanding
Economic Setting in India
Mid 1991 India on the brink of defaulting
on its international obligations
Foreign currency Assets - $975 million

Crisis led to a economic reforms initiated

by the government
(1) Domestic Industry was deregulated (2)
Early & Mid 1990s

License Raj was abolished

(3) Regulations that planned & protected
the Indian Industry were abolished

()Ratan Tata - nominated as the Chairman

of the Tata Group in 1991

()New regulations required foreign firms

to tie up with Indian Firms

()Tata turned out to be a preferred choice

for foreign investors because of the
groups reputation
Economic Setting in India (Contd)
Asian Financial Crisis Although Indian Economy
not majorly affected
Ratan Tata strategy, Not to put all our eggs in
Foreign Firm Tie Up
the Indian Basket Mercedes Benz
Internationalization accelerated in the late
AT&T
Late 1990s

1990s and early 2000s

IBM
Purpose of Internalization
(i) Additional revenue Sources Silicon Graphics
(ii) Operating Challenged in India
Cummins Engine
Challenges -
Honeywell
(i) Increased Competition for domestic players
(ii) Limited Infrastructure for International
Players thus undermining the
hype of potential of the Indian market
 In 1999, foreign investments by Indian companies were capped at
$15 million

Investmen
In 2000, Forex Regulatory Act was replaced by much liberal Forex
management Act
ts

In 2004, foreign investment limit was raised to 100% of Net Worth

and could acquire
businesses unrelated to their domestic businesses
In 2007,
From RBIIndian
2005, raisedcompanies
the cap onwere
total allowed
overseastodirect
borrowinvestment by
from domestic
Indian for
Banks companies
FDI to 400% of net Worth
and acquisition purpose
Financing

International Financial markets allowed borrowing at lower cost and

presented
more streamlined operations
Reputation of India and Indian companies was boosted
In 2007, S&P and other rating agencies raised Indias soverign debt
rating to
Post deregulation, India witnessed an overall growth of its economy
investment
as well as grade
the Securities Market
Securities

This piqued the interest in securities like FCCBs, ADRs and GDRd
Indian

being issued by
the Indian Companies
Private external flows to Indian Companies shooted from $2.2 billion
in 2000 to
$19.3 billion in 2005
In 2006, M&A deals across the globe amounted to $3.8 trillion
Tata Consultancy Services
Beginning in 2001, TCS used M&A in India
and overseas to make additions to its
technological capabilities
TCS the groups information technology (IT)
giant was growing at a faster pace than
other TATA group of companies
As there was a limited demand for IT
services in India
It exported IT services to North America and
Europe
It opened delivery centers in India, Australia,
Brazil, China, Hungary, Japan, Mexico and
Uruguay and employed 89000 employees
By 2006-07, 91% revenues were derived
from outside India and TCS accounted for
$27.8 billion of Tata groups collective
capitalization of $59.5 billion
Acquisitions made by Tata Consultancy
Services
Date Tata Company Acquired Company Country
Nov 2001 TCS Computer Maintenance Corporation India
Jan 2004 TCS Airline Financial Support Services India
Mar 2004 TCS Aviation software Development India
Jul 2004 TCS Phoenix Global Solutions India
Oct 2005 TCS Financial Network Services Australia
Oct 2005 TCS Pearl Group UK
Oct 2005 TCS Comicrom Chile
Feb 2006 TCS Tata Infotech India
Oct 2006 TCS TKS- Tecknosoft Switzerland
Nov 2006 TCS Total Communication Solutions Australia
Titan
Indias leading watch brand
Incurred insignificant losses when entered in
European market in 1990s
It found more success when it entered Middle East
Reason for success: Significant population of NRI
in such places
Titan has no real history of acquisition until
recently it acquired majority stake at CaretLane
It has Joint Venture with Timex between 1992 to
1998
It also has presence in Jewelry [Tanishq], Helmet
[Fastrack] and fragrance, wallet and eye wear
Indian Hotels Company (IHC)
IHC parent of the groups hospitality businesses
including Taj Hotels, was among the earliest
group companies to begin globalizing its
business
In 1982, IHC purchased two properties in London.
After incurring losses in 1990s, sold minority
stakes to two strategic partners in 2001
IHC divested owned properties in New York,
Chicago and Washington, D.C in late 1990s
IHCs strategy for globalization shifted to
presence in Gateway cities through
management contracts with small equity
positions in properties instead of ownership to
build seamless connectivity to potential global
customers
In this way they could build a chain though
owning very few hotels
Acquisitions made by Indian Hotels Company
(IHC)
Date Tata Company Acquired Company Country
Sep IHC Regent Hotel India
2002
Jul 2005 IHC The pierre (on lease) US
Dec IHC W hotel Australia
2005
Jan IHC Ritz-carlton-Boston US
2007
Apr IHC Hotel Campton place US
Tot al
2007 Re ve nue (in M illion ) Return Ratios
18.0%
Jul 2007 IHC Innovative
26,011.3 foods
16.0%
India
14.0%

18,747.3 12.0%

10.0%

13,379.4 8.0%

10,397.6 6.0%
8,917.4
4.0%

2.0%

0.0%
2004 2005 2006 2007

Return on Assets Return on Capital Return on Equity

2003 2004 2005 2006 2007
Tata Tea
Acquired UK based Tetley in February 2000
Group first international M&A
Reason of acquisition- slow domestic growth
fueled with need to seek new growth
opportunities and transform itself into a branded
tea company
Why Tetley tea- only large tea company not
owned by a large consumer goods conglomerate
Tetley tea was 3 times that of Tata tea at the
time of acquisition
Deal Value: 271 mn
Largest oversea acquisition by any Indian
company at that time
Transaction method: LBO
Deal Structure-
70 mn in equity
45 mn through GDR
156 mn through non recourse debt financing
Tata Tea Post M&A
Senior management of Tetley Tea was virtually
unchanged and carried forward this practice
for other acquired company
Synergy was happening but not to the extent
of everyones expectation
Tata injected money to accentuate growth
They bought
Good Earth (in 2005-06)
Eight O Clock (in 2005-06)
Jemca Tea (in 2005-06)
Energy Brand Inc (in 2006. They bought
30% stake for $677 mn)
In 2007, Tata sell minority stake for $1.2 bn to
Coca Cola. (Coca Cola acquired EBI
completely)
Tata Steel
Established in 1970 as the Tata Iron and Steel
Company (TESCO), Indias first steel company.
Production facilities was established in
Jamshedpur, to which in 1944 Fortune Magazine
Article called the crown in Tatas diadem of
benevolent paternalism (because administration
of civic services of the company)
In 2007 Tata steel became countrys largest
private sector steel company
TSICO faced little competition because of high
duties imposed on import but in early 1990s after
the Indian governments program of liberalization
began, TISCO found itself in trouble.
A U.S. based management consultancy went so
far as to advise the group to exit the steel
industry.
Tata Steel (Contd..)
To improve its
competitiveness, Tata
Steel began to

Benchmarking its cost Improved production

against those of leading efficiencies through And revamped its sales
steel companies waste reduction and and marketing operation
worldwide new technology
Tata steel also reduced its workforce gradually from 78,000 in the early 1990s to 48,821 at the
end of FY 2000-2001
In 2001-2002, B. Muthuraman began his tenure as Tata Steels Managing Director (When steel
price were at historical low and the company set out to become EVA positive which was
accomplished the very next year and in successive year)
In 2003, Muthuraman initiated a broader strategic evaluation of Tata Steel to develop a vision
for the companys future direction independent of any financial constraints
Tata Steel planned to grow in India and overseas through six connectors and within 10 years
make Tata Steel into a much larger and more global player
Tata Steel Muthuraman Plan
Domestic Tata Steel would expand production in India, in Jamshedpur where the companys
expansion entire production capacity has been based and in greenfield development elsewhere
Developed a de-integrated strategy of supplying India sourced raw material and
semi-finished materials to finishing closer to consumer end-markets.
De- Acquiring the steel business of Singapore based NatSteel Asia in February 2005, and
integrated Millennium Steel, Thailands largest steel company in Aril 2006, which enabled Tata
strategy Steel to pursue this strategy in Southeast Asia
The acquisition increased Tata Steel presence in Australia, Malaysia, the Philippines,
Vietnam, and importantly China (where per capita consumption of Steel was more
than six times greater than in India)
Mature Acquiring companies in more advanced market would enable Tata Steel to improve its
market R&D capabilities and its operating practices
M&A
With mines rich in iron ore and coking coal, Tata Steel was able to source majority of
Raw
its own raw materials and insulated the company from global price fluctuation
materials
Companys vertically integrated operation made it worlds lowest cost steel producer
security
the company also acquired additional source of raw material outside India
In November 2005 the company a $262.6 million joint venture with BlueScope Steel
Downstrea
of Australia to produce steel products for the construction and building material
m products
industry, primarily for sale in Southeast Asia
Logistics The company established a joint venture shipping company with NYK Line of Japan in
control December 2006
Tata Steel (Contd..)
2006 : Global consolidation of steel Challenges:
Chorus had low profit margins-
Netherlands-based Mittal Steel merged with Arcelor of
Luxembourg
need to work with the
Combined entity that was the worlds largest steelmaker management to improve operating
4 times the production volume of its nearest competitor efficiencies
More vulnerable to fluctuations in
2005-06 : Acquisition of Corus steel and raw material prices
Before Acquisition 80% of own
World Steel Dynamics named Tata Steel the worlds best
steelmaker raw materials
Tala steel can be another consolidator After Acquisition 17% of own raw
Organically it will go to about 45 million tons materials
5th to 6th Largest : Presence in Concern for Analysts:
European Market Losses if steels price fell 10%-11% at
Catapulted Tata Steel from 56th to the 6th largest steelmaker in that time
the world Further Analysis:
Previously acquired companies in the developed markets and Acquisition was viewed positively
financed leveraged transaction
Scale and scope of Corus acquisition was different in light of higher prices in Europe
Financial contribution from Tata Sons exposed companies to during the first half of 2007
new opportunities and risks 10% increase in steel prices for FY
Global supply-chain service business- automotive and
construction sectors 2007-08 and FY 2008-09 could
Save $450 million in production, procurement, financing, and enable Tata Steel to pay off its
other synergies over the first three years after the acquisition
The Role of Group Center
Played a role in the internationalization process of Tata Sons.
Tata Sons hired Alan Rosling as Executive Director and member of GEO & GCC in Jan04 to
coordinate groups globalization.
Rosling described the internationalization process as dynamic tension between the Group
center and the operating companies.

Established umbrella operations to facilitate the Groups Globalization Process

Instituted offices in key markets the US, UK, South Africa, Bangladesh, & China
Coordinated between Govt and Media Relations
Focused on Tata brand promotion and Procurement

Coordinated business development efforts in less-developed markets.

Brought together representatives of different operating companies working in the same country
for identifying mutually beneficial initiatives.

Played important role in internationalization of Human Resources, Finance and M&A.

Strategized ways to acquire potential target companies important to both the operating firm
and the group as a whole.
Tata sons hired Arun Gandhi in Aug03 as a member of the GEO & GCC to serve the Groups
point man on M&A
The Role of Group Center in M&A
Group center assessed potential acquisitions from a wider perspective than the individual
operating companies.

Provided additional financial support from the Tata Sons, whenever a particular
acquisition is identified as beneficiary to both the firm
Major group acquisitions were structured in order to ensure the groups holding in the
acquiring operating company increased as the result of the acquisition.
Integration Committees were set up post acquisitions to help combine the entities and
realize synergies. But the decentralized nature of Tata Group limited this rapid adoption
of common
Project Prune practices.
Year Savings
Tension between central initiatives and local management 2003-04 $3 Million
came into notice, which resulted in commencing a cost saving
2004-05 $10 Million
initiative- Project Prune.
Established in 2003-04 to look at procurement costs across 2005-06 $32 Million
group companies and negotiate with providers as a group to 2006-07 $20 Million
apply the best deals to all Tata companies.
The Project fetched the group easy savings which were not
thought of before.
TATA MOTORS

Tata Motors established in 1945, was the largest operating

company of Tata Group (Before Tata Steel Corus deal)

The company built on a reputation for producing sturdy

vehicles for Indias poor road conditions.

De-Risking of Tata Motors:

Tatas core business of commercial vehicle was hit hard by

an economic downturn just as the company was paying for
its audacious move to produce Indica .
Tata motors posted $105 million loss in 2000-01.
Tata motors main challenge was to de-risk the cyclical
nature of commercial vehicle business.
The company sought to do this by moving into light
commercial vehicle and Buses business.
It expanded other businesses such as Spares and
Services.
TATA MOTORS: Internationalization
To compete with the competition from foreign companies in India, Tata motors needed to develop advanced
products, which would be more attractive too consumer markets more advanced than India .
TATA MOTORS: Internationalization
Tata Motors took a focused approach to its internationalization in terms of both markets and product
range. The Company started focussing on key priority markets such as South Africa, the Middle East
,and Korea to get some investments for brand building and developing networks for Spares and Services.
TATA MG
In 2003 , Tata Motors Rover
partnered with MG-Rover,UK Strategic Pricing of Spare Parts
Tata Motors to export 100,000 CityRovers (Indica in High maintenance cost of competitors such as
European Market) for five years
Mercedes and Japanese Brands
Sale were fraction of 100,000 due to Rovers high Tata looked at the Total life cycle cost of its Trucks and
pricing of the car
reduced the prices of Spare parts. Upgrade the
The partnership dissolved when MG Rover went
product range compared to comfort of Mercedes when
into
people are shifted to Tata products
administration an insolvency procedure in
2005 Tata Daewoo(Commercial Vehicle
To build and Company,
stretch TataKorea)
Motors capabilities in
heavier trucks in portfolio
Intermediate step taken in 2004 to raise the level
product development and cut the time to
produce higher-level products
Access to the Korean market and a launching pad
for possible entry into other markets in the region
TATA MOTORS: Internationalization

Joint-
JV with
Venture
21% stake Thonburi Technical
with JV with Fiat
in Spanish Automotive centre in
Marcopolo to produce
bus-maker Assembly U.K. to
in Brazil for Passenger
Hispano plant for contribute
worlds cars and
Carrocera Pick up product
largest Bus parts in
in 2005 Trucks in developmen
Manufactu India
Thailand, t
ring
2006
Facility

International business as a share of the companys consolidated revenues

increased
from 5% in FY2002-03 to 18% in FY 2006-07
Tata Motors- Targeting the Niche

Upgradation of products through international acquisitions.

Target markets still low and middle income economies + Middle
of market segment
Challenge : To address different market. Reduce margins. Create
new markets.
Action: targeting niches in its product development.
Small inexpensive truck Replacement for auto New factory opened for
Tata Ace rickshaws + Transport huge demand
Worlds cheapest car Cost reduction through: Replacement for bikes
Tata Nano Half price of its High volume, low cost International media
competitors parts, New production attention
techniques
Automotive Market Indicators
Vehicles per
GDP per Persons per
miles of 2003-06 2006-07
capita (US$) car
Road CAGR % change
(2005) (2005)
Country (2005)
India 565 141.1 5.0 14.99% 13.9%
China 743 145.9 29.0 23.47% 21.1%
Indonesia 812 62.9 29.7 -18.05% 54.1%
Japan 35802 2.2 100.9 -0.53% 0.5%
Malasiya 2669 3.7 173.1 4.51% 2.7%
South Korea 14997 4.4 524.8 -0.65% 5.6%
Thiland 1432 18.7 239.0 0.54% 1.9%
France 29555 2.0 65.5 0.45% 1.9%
Germany 30694 1.8 342.1 1.94% -1.0%
Italy 25118 1.7 131.1 0.48% -1.9%
Poland 4080 3.1 58.0 -14.16% 2.2%
U.K 32289 2.0 83.5 -3.32% -1.9%
U.S. 37545 2.2 59.9 0.88%
Chinas Market for Tata Motors
China: Important potential customer market
Problems: Regulations on minimum investment, branding
Ravi Kants view: Restrictive nature of doing business there
made them to step back. And they didnt want to commit
money for which they dont see return.

Market Growing at 23.47%

from 2006-07
US Market for Tata Motors
US: Worlds largest car market
Problems: Organic growth would take 25-30 years
Requires high marketing expenditures & ability to produce
models of sufficient quality
Ravi Kants view: They neither have scale nor funds to enter. It
would be their last priority. The only way they can see is
through M&A.
Less Growth:0.88%
Large Number of vehicles Sold
Persons per car very low: 2.2
TATA MOTORS JAGUAR AND LAND
ROVER
A British luxury and sports
car brand Premier Automotive Mid-range and luxury
Ford had hoped to build Group sports-utility vehicle
Jaguar into a rival of BMW Rugged vehicle with strong
and Mercedes, but overbuild off-load capabilities
capacity Sold 47,774 in US and
The sales declined by 32 % in 75,335 in Europe in 2006
2006 Price range $42,150-
Price range $34,995-
Combined Pre-Tax losses of $4.8 billion in
$92,750
$92,500 2004-06

Jaguar and Land Rover Acquisition:

In 2007,Ford was considering selling two of its brands Jaguar and Land Rover . Ford had lost $12.6 billion in
2006 and was in the midst of a major business restructuring
Conditions for Acquisition :
i. Acquiring company could not close any of the three factories related to Jaguar and Land
Rover
ii. Ford maintain a minority stake in the companies after any sales
Ford opposed to private equity investors from buying. They may close pension schemes ,make people
redundant and strip assets
Jaguar and Land Rover shared a factory in Liverpool as well as some technology and business operations
such as procurement ,complicating any possibility of separate sales of the two brands
TATA MOTORS JAGUAR AND LAND
ROVER
Challenges for Tata Motors
In May 2007,Tata Motors announced plans for CAPEX of 120 Billion ($2.98 billion) over the next 3-4 years
Tata Motors planned to expand its capacity of Cars ,utility vehicles, commercial vehicles and The Ace from
collective total of 595,000 in May 2007 to 955,000 by June 2008 (approx. 60 % increase)
Tata Motors raised $450 million in Jun,2007 by issuing Foreign Currency Convertible Alternative Reference
Securities
1. Sustain activities and expand capacities - 40 bn
2. Develop new products
World Truck designed with Daewoo
New Car and Utility platform
The Nano - 80 bn
In first quarter of FY 2007-08 ,Tata Motors Domestic sales of Medium and Heavy Commercial vehicle were
down 11.3% YoY.
The Ace was central to Tata Motors profitability , registered 9.5% growth YoY
In June 2007, Italian Piaggio - Ape Truck entered into Indian Market to compete with the ACE. Mahindra &
Mahindra and Bajaj Auto were expected to begin selling similar vehicles by 2008
Companys Passenger vehicle sales increased by only 3.9% in Q1 FY 2007-08 against 12.9% of overall
segment. Passenger vehicle margins had trimmed by companys Aggressive pricing to maintain market share
The companys free cash flow was negative (excluding Vehicle financing profit and Foreign exchange
TATA MOTORS JAGUAR AND LAND
ROVER

BENEFITS RISKS
Jaguar is a loss-making brand
Jaguar and Land Rover would bring The deal value for Jaguar and Land Rover is
Well-known global brands
expected to be priced at $1 billion to $2 billion,
New technology
which a significant addition to the companys
Advanced market distribution channels
existing capital expenditure plans ($2.98 billion)
Long-term profitability
Short term cash outflow may lead to high
Portfolio extension
debt/equity levels(94.6%)
Poor operating profitability of the takeover targets
could lead to very long payback periods
Toward a Truly Global Tata Group
The rapid transformation of a Tata group from one country to highly global
organization presented significant management challenges to Tata group
The group would have to carefully balance financial risks of leveraged transactions
with :
o Expansion opportunities
o Weigh domestic versus international opportunities
o Realize synergies in acquisitions
Apart from strategic and financial challenges ,corporate culture of group companies
will be affected by globalization
Acquiring Jaguar and Land Rover ,Tata group sought to square its origins,
organizations, and capabilities with its global ambitions