TATA -JAGUAR -LAND ROVER

DEAL

Overview

TATA MOTORS A SNAPSHOT

TATA GROUP is 150 year old, Previously Tata Engineering and Locomotive Company, Telco. India's largest passenger automobile and commercial vehicle. Tata Motors was established in 1945

Listed on the New York Stock Exchange in 2004.

TATA MOTORS Company Profile

It is the 5th largest medium and heavy commercial vehicle manufacturer in the world. listed in BSE, NSE & NYSE. Subsidiaries JAGUAR CARS LAND ROVER TATA DAEWOO COMMERCIAL

JLR-One more step towards a Global Footprint

JAGUAR The ups and downs

1922 - Founded in Blackpool as Swallow Sidecar company 1975 - Nationalized in due to financial difficulties 1984 - Floated off as a separate co in the stock market 1990 - Taken over by Ford A statement of ultra luxury, Holds Royal warrants, Rarely advertised, Fords formula one entry since 1990s Ford acquired Jaguar for $2.5 billion

LAND ROVER
Founded in 1948 as a marquee of the Rover Company. Known for superior off-road performance, Used by

military for projects and expeditions, Safe but less reliable, Makeover in recent times
In 1994 Rover Group is taken over by BMW & sold to FORD MOTORS for 2.75 bn$ in 2000. Key issues: Ford acquired Jaguar for $2.5 billion in 1989. Ford acquired Land Rover for $2.75 billion in 2000. But the US auto major put the two marquees on The market in 2007 after posting losses of $12.6 billion in 2006

KEY ISSUES
Ford acquired Jaguar for $2.5 billion in 1989.

Ford acquired Land Rover for $2.75 billion in 2000.

But the US auto major put the two marquees on the market in 2007 after posting losses of $12.6 billion in 2006 - the heaviest in its 103-year history.

Why is Ford Selling?

Reports said losses at Jaguar stood at USD 715 million in 2006. The 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-Its a test that Ford failed.

Ford is combining both the brands

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 Indias 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

The Real Picture..

Consumer demand plummeted Credit lines were frozen Automotive sector in India suffered contraction in demand Launch of Nano delayed Tata Motors reeling under a huge debt burden

Tata Motors Financial Performance

(In Rs. Million) Q3FY09 Revenue EBITDA Profit before Tax Net Profit 47,586.2 916.5 (4191.5) (2632.6) Q3FY08 72,518.3 8,197.4 6651.0 4990.5 Volume Summary Total Commercial Vehicles Total Passenger Vehicles Exports Total Volumes 49,546 42,187 7,027 98,760 82,5568 49,284 12,756 144,608 195,192 142,507 29,177 366,876 215,313 153,475 40,488 409,276 9MFY09 187,659.2 11,186.3 2839.5 4098.4 9M FY 08 199,813.0 21,608.6 18,784.2 14,926.5

Problems in the Domestic Market

The profits for the first quarter for the year 200809 were at 3.26 billion Q3 the sales of passenger vehicles went down to 41,287 units a drop of 14.14% Tata Motors cut production across different categories.

The Quest for the Cheapest Car..

The Nano was targeted at the segment of twowheeler drivers The Nano was touted to be the least expensive car in the world Tata Motors spent approximately US$ 430 million on developing the Nano The company had invested more than Rs 20 million on the Singur plant

Analysis

Strategic logic
Long term strategic commitment to automotive sector.
Opportunity to participate in two fast growing auto segments- Luxury cars and all terrain vehicles.

Enhanced human capital and managerial talent.

Improvement in global market position through a combination of resources and strengths.

Sharing of best practices in manufacturing and quality assurance systems and processes
Benefits from component sourcing, design services and low cost engineering

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.

Valuation of deal
A] Cost synergies 1] Material costs and not manpower key to better margins. 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.

2] Tata Group has multiple levers

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 Incat have varied competencies in the Auto space

B] Revenue synergies - A long-term possibility In the long-run Tata Group and Tata Motors footprint in South-East Asia should help Jaguar/Land Rover diversify their geographic dependence from US (30% of volumes) and Western Europe (55% of volumes)

COST SYNERGIES
Tata auto component Flagship company of TAMOs ancillary biz Manufacturing, Engineering and Supply chain management Customers include Global OEMs like Ford, Daimler, Chrysler, FIAT Tata Steel - Corus Leader in automotive grade steel in the European markets 16% of revenue from auto steel division Enjoys Q1 supplier status with Ford to supply steel for Jaguar and Land Rover

JLR
Tata Consultancy Services Provides services like engineering design, manufacturing solutions and sourcing services Automotive division accounted for 15% revenues Major customers are Chrysler, Ford, GM INCAT Provides services like supplier programs, consulting services and global sourcing Major customers are Chrysler, Ford, GM, Honda and Nissan

Approach to acquisition
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 arrived as top bidders ($ 2.05b & $ 1.9b)

03/01/2008 Ford announces Tatas as the preferred bidders Tata motors raised a bridge loan of US $ 3 billion through syndicate of banks.

Contd..
Additional amount of US $ 0.7 billion was for engine and component supply, contingencies and working capital. The amount was repaid in following manner
Rs 1.92 billion Underwriting agreement with JM financial consultants Rs 1.75 billion was raised through a deposit scheme from the public Additional subscriptions by promoter companies- Tata sons, Tata capital and Tata Investment Ltd. 1 billion aid package by British Government .( out of total 2.3 billion )

Post merger
Following Cost Rationalisation initiatives were taken to improve cash flows: 1] Single shifts and down time at all three UK assembly plants. 2] Supplier payment terms extended from 45 to 60 days in line with industry standard. 3] Receivables reduced by 133 million from 38 to 27 days. 4] Inventory reduced by 217m between June 2008 and March 2009 from 70 to 50 days .

Contd..
5] Labor actions - Voluntary retirement to 600 employees. - Agency staff reduced by 800. -Offered leaves to 300 workers of Bromwhich and solihull plant. -Additional 450 job cuts including 300 managers.

6] Agreement with Unions to implement pay freeze and longer working hours (equivalent to approximately 20% reduction in labor costs.)
7] Engineering and capital spending efficiencies.

8] Fixed marketing and selling costs reduced in line with sales volume.
9] Reduction in all other non-personnel related overhead costs.

Evaluation

THE DEAL
100% stake in Jaguar & land Rover Business

TAMO has acquired the business & initially they will be operated independently of the partner. These are well invested plants 4-5000 engineers engaged in testing ,prototype design & powertrain Engineering , development & integration Both existing national sales companies of jaguar/land rover & also those that are carved out of current Ford operation This covers all key technologies to be transferred to JLR & perpetual royalty free license on technologies shared with Ford A minimum guaranteed amount of $1.1 bn which will help managing in Tax going forward Ford Motor Credit will continue to support the sales of JLR for around next 12 months Ford will contribute $ 600 mn of the Pension Fund

3 Plants in UK 2 advanced design & engineering center 26 National sales company Intellectual property rights Capital Allowance Support from Ford Motor Credit Pension Contributed by Ford

Fund Raising (7200 Crore)

Ordinary Equity Shares

A-Class Equity Shares

5 Year 0.5% Convertible Preference Shares Optionally convertible into A equity shares after 3years but before 5years from the date of allotment (3000 Crore)

Full Voting Right (2200 Crore)

1 Vote for every 10 A-Class Equity Shares (2000 Crore)

* This is the first time a major Indian Co. is raising money by issuing shares with differential voting rights

Problems
Drop in share prices Failure of rights issue Huge debt burden Sales volume decreased by 35.2% Lack of consumer loans Issue of timing Operational freedom slows pace of change

 Depressed state of the global premium car market Jaguar/Land Rover lost 306 million pounds ($504 million) for the fiscal year ending March 2009 Tata Motors reported a net loss of Rs3.29bn ($67 million) for the quarter to end-June Tatas core commercial vehicles market in India is also suffering from slower sales

 Extremely high manufacturing costs in Britain Eliminated more than 2,200 jobs

Benefits
Tata wanted to make a global impact and it thinks that buying these brands at a lower rate now, will give better value later on. This acquisition also eases the entry of Tata in European market which it has been eyeing for long. A previous JV with FIAT took place, this will further help them penetrate EU market.

 Reduce the company dependence on the Indian market which accounted for 90% of its sales Increase sales in emerging markets Reduce dependence on mature markets Opportunity to spread its business across different customer segment

 At the price staring from 63 lakh and going upto 93 lakh, it seems Tata has just got the right place to compete with the current market leaders BMW, Audi, Mercedes Publicity on an international scale Access to large distribution network

 JLR had many new models lined up for next 3 years, so no much work just profits Strong R & D culture and facilities Component sourcing, engineering and design benefits

SWOT
Strengths: Tatas strong management capability Strong monetary base to invest Weaknesses: Jaguars declining sales record Inexperience of handling such luxury brands

Opportunities:

Tatas Jaguar Land Rover Acquisition

Market is volatile and driven by new products Strong presence of competitors like Mercedes, BMW, Lexus and Infinity

Support from Ford in terms of Technology,Engine, IT, Accounting Adding up of luxury brands in the product line Access to European Market

Recommendations

Partnering
Keep acquisition structurally separate Maintain its identity Hunt for synergies in selected areas
Procurement synergies

 Prevent their own antecedents from clouding established brands Share operational Know-how Operational Autonomy

Current Status
Jaguar Land Rover global sales in December 2009 were 21,134 vehicles, higher by 33%. Jaguar sales for the month were 4,794, higher by 5%, while Land Rover sales were 16,340, higher by 45%

Thank You