1.

Pre-Merger Due Diligence:

Tata-JLR Deal
Tata had completed this biggest buy-out in the automobile space by an Indian company on
June 2, 2008 as it bought the ownership of luxury brands - Jaguar and Land Rover. The deal
included the purchase of JLR's 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 was interested in acquiring JLR as it will reduce the companys dependence on the
Indian market, which accounted for 90% of its sales. Morgan Stanley reported that JLRs
acquisition appeared negative for Tata Motors, as it had increased the earnings volatility, given
the difficult economic conditions in the key markets of JLR including the US and Europe.

Tata Motors raised $3 billion (about Rs 12,000 crore) through bridge loans for 15 months
from a clutch of banks, including JP Morgan, Citigroup, and State Bank of India. Tata came
under cash crisis because of the Corus deal and the huge investments in the TATA Nano
project which itself was surrounded in a lot of uncertainties. The credit rating companies
also took a negative outlook toward this deal because of the huge debt requirement to
complete the deal.
Ford Motors Company (Ford) is a leading automaker and the third largest multinational
corporation in the automobile industry. The company acquired Jaguar from British Leyland
Limited in 1989 for US$ 2.5 billion. After Ford acquired Jaguar, adverse economic conditions
worldwide in the 1990s led to tough market conditions and a decrease in the demand for
luxury cars. The sales of Jaguar in many markets declined, but in some markets like Japan,
Germany, and Italy, it still recorded high sales. In March 1999, Ford established the PAG
with Aston Martin, Jaguar, and Lincoln. During the year, Volvo was acquired for US$ 6.45
billion, and it also became a part of the PAG.
In September 2006, Allan Mulally, President and CEO of Ford, as part of the restructuring
exercise called the Way Forward' plan decided to dismantle the PAG. In March 2007, Ford
sold the Aston Martin sports car unit for US$ 931 million. In June 2007, Ford announced
that it was considering selling JLR. After failing to re-brand and integrate these luxury
brands with its product portfolio, Ford Motors felt that acquisition was not the right way of
penetrating into the upscale segment.

1.1 Due Diligence (Strategic Fit)

Tata Motors stood to gain on several fronts from the deal.
The acquisition would help the company acquire a global footprint and enter the high-end
premier segment of the global automobile market

13

Tata also got two advance design studios and technology as part of the deal the company gets
access to latest technology which would also allow Tata to improve their core products in India,
for e.g., Indica and Safari suffered from internal noise and vibration problems

This deal provided Tata an instant recognition and credibility across globe which would
otherwise would have taken year

TOWS Matrix
Opportunities:
Rising appetite for luxury
automobiles in growing markets like
India and China
Established European brands
available at affordable investment
Support from Jaguar in Technology,
Engine, IT, Accounting
Complete product line with addition
of luxury brands
Access to European and American
Market

Threats
Volatility in market driven by
new products
Strong presence of competitors
like Mercedes, BMW, Lexus and
Infinity
Receding sales and brand
image
Downturn making Investment
riskier and costlier
90% of TAMO revenues comes
from one market alone-India

Strengths:
Tatas strong
management
capability
Strong monetary
base to invest
Synergy due to
Corus, TACO and
TCS
Experience in
growing market like
India
New product
development and
brand building
experience

JLR would give TAMO an in-house

R&D and designing capabilities
Better utilization of cash reserves
available with TAMO
Reduce production cost of JLR by
synergizing better with other TATA
companies like Corus

Acquisitions like JLR will help

TAMO in competing with
brands like Mercedes etc.
Proven Management and brand
building capabilities would
facilitate faster JLR turnaround
Strong financial muscle will
help TAMO to invest in R&D
and produce new better
products
Improve risk profile of TAMO
with diversification in different
markets

Weaknesses:
Inexperience in
Handling luxury
automobile brand
Inexperience in
turning around loss
making company
R & D and designing
capabilities

JLR experience and designing

capability would help TAMO in
improving their existing products in
Indian markets.
JLRs strong brand image will ease
acceptance of TAMO in international
markets
Keeping the existing management
team of JLR make turning around
easier

Leverage experience gained

with Tetley and Corus in
allaying market apprehensions
about acquisition
Make Jaguar design center as
their global design HQ
Use Jaguar channel to
distribute TAMO brands without
merging the brands

14

1.2 Company Profile:

Tata Motors
Tata Motors, part of the Tata Group, one of the largest business conglomerates in India with
a presence in over 80 countries and a work force of around 290,000 people. Tata Motors is
the largest automobile company in India with gross revenue of Rs.330.93 billion in 2007-08.
Tata Motors is also the second largest bus manufacturer and the fourth largest truck
manufacturer in the world. Tata Motors unveiled the cheapest car in the world, the Tata
Nano, priced at around US$ 2,500, in early 2008.
Tata Motors Limited, formerly known as TELCO (TATA Engineering and Locomotive
Company), is a multinational corporation headquartered in Mumbai, India. It is India's
largest passenger automobile and commercial vehicle manufacturing company and a
midsized player on the world market with 0.81% market share in 2007 according to OICA
data. Part of the Tata Group, and one of the world's largest manufacturers of commercial
vehicles. The OICA ranked it as the world's 19th largest automaker, based on figures for
2007 as well as the second largest automaker of commercial vehicles.
Established in 1945, when the company began manufacturing locomotives, today it is the
leader in commercial vehicles in each segment, and among the top three in passenger
vehicles with winning products in the compact, midsize car and utility vehicle segments. The
company is the worlds fourth largest truck manufacturer, and the worlds second largest bus
manufacturer. Tata Motors has its manufacturing base in Jamshedpur, Pantnagar, Lucknow,
Ahmedabad and Pune in India as well as manufacturing facilities in Argentina, South Africa
and Thailand.
The company manufactured its first commercial vehicle in 1954 in collaboration with DaimlerBenz AG, which ended in 1969. Tata Motors is a dual-listed company traded on both the New
York Stock Exchange and the Indian Stock Exchange (where it is a component of the Sensex
index). Tata Motors was listed on the NYSE in 2004, and in 2005 it was ranked among the top 10
corporations in India with an annual revenue exceeding INR 320 billion. In 2004, it bought
Daewoo's truck manufacturing unit, now known as Tata Daewoo Commercial Vehicle, in South
Korea. It also, acquired a 21% stake in Hispano Carrocera SA, giving it controlling rights in the
company. In March 2008, it finalized a deal with Ford Motor Company to acquire their British
Jaguar Land Rover (JLR) business, which also includes the Rover, Daimler and Lanchester brand
names and the purchase was completed on 2 June 2008.

Jaguar
JLR was a part of Ford's Premier Automotive Group (PAG) and were considered to be British
icons. Jaguar was involved in the manufacture of high-end luxury cars, while Land Rover
manufactured high-end SUVs.
Jaguar Cars Ltd. (better known simply as Jaguar) is an automaker from England, United
Kingdom that manufactures luxury and executive motor car.
Sir William Lyons founded jaguar as the Swallow Sidecar Company in 1922, originally making
motorcycle sidecars before switching to passenger cars. The name was changed to Jaguar

15

after the Second World War due to the unfavorable connotations of the SS initials. Jaguar
cars are designed in an engineering center at their headquarters in Coventry, England and
are manufactured in one of three English Jaguar plants; Castle Bromwich in Birmingham,
Halewood near Liverpool and Gaydon in Oxford shire. Following several subsequent changes
of ownership since the 1960s, Jaguar was listed on the London Stock Exchange and became
a constituent of the FTSE 100 Index.

Land Rover

British car manufacturer founded in 1948 as a marquee of the Rover

company

It is known for superior off-road and road performance

In 1994, Rover group was taken over by BMW
BMW sold Land Rover to Ford Motors for $2.75bn in 2000
Generally used by military for projects and expeditions, safe but less
reliable
Land Rover manufactures high-end SUVs.

1.3

Automotive Industry Value Chain:

Raw Material
Suppliers

Steel and PU
(polyurethane)
: most basic
materials
required for

exterior and
interior
respectively

Tier 2 Supplier

Manufactures
sub
components
for a number
of basic
automobile
components
Tier 2 suppliers
are well
integrated in
the supply
chains of major
tier 1 suppliers

Tier 1 Supplier

Make major
components for
the OEMs

Highly
integrated into
the supply
chain of major
OEMs

Dealers
Original Equipment
Manufacturer
(OEM)

Assembles the
components
and produces
the automobile
Most critical
link in the
entire supply
chain

Dedicated
POS (point-of
-sale)
for
each OEM

Represent
OEM to the
customers,
thus critical
for overall
customer
satisfaction

Implements
and drives
innovation &
efficiency
across the
entire chain

16

1.4 Rationale behind the merger

The acquisition of Jaguar Land Rover enabled Tata to acquire internationally recognized
brands with a strong heritage and global presence, and increases Tata Motors product and
market diversity. JLR also will help Tata Motors expand and diversify their current
international sales market, allowing them to reduce reliance on the Indian market.
Land Rover provides Tata Motors an opportunity to broaden their existing portfolio of UV,
SUV and crossover offerings. Land Rovers products in the all-terrain vehicle segment are
complementary to Tatas products in terms of features, technology and price positioning and
as such, allow them to offer a wide range of vehicles that satisfies various consumer needs.
Additionally, Jaguars premium product offerings will provide Tata with immediate entry into
the luxury performance car segment.
The acquisition of Jaguar Land Rover also enables Tata to leverage Jaguar Land Rovers
technology and engineering expertise. For example, Jaguar Land Rovers technological
capabilities in petrol engines, Four Wheel Drive technology and Aluminum BIW (Body in White)
technology will help Tata further develop and strengthen their existing engineering capabilities.
Through the acquisition, Tata also gain research and development capabilities of
Jaguar Land Rovers strong engineering workforce and its two advanced design centers in the

UK.
To summarize, some of the reasons behind the merger are as follows:
1. Immediate entry to the luxury performance car and premium all-terrain vehicle
segments
2. An improvement in the global market position through a combination of resources
and strengths
3. Strengthening of technological and product development/ innovation capabilities to
address changing market trends
4. Sharing of best practices in manufacturing and quality assurance systems and
processes
5. Enhanced human capital and managerial talent
6. Potential operational synergies

1.5 Why Tata went for JLR?

Tata Motors had several major international acquisitions to its credit. It had acquired Tetley,
South Korea-based Daewoo's commercial vehicle unit, and Anglo-Dutch Steel maker Corus
for the details of the group's international acquisitions). Tata Motors' long-term strategy
included consolidating its position in the domestic Indian market and expanding its
international footprint by leveraging on in-house capabilities and products and also through
acquisitions and strategic collaborations.
On acquiring JLR, Ratan Tata, Chairman, Tata Group, said, "We are very pleased at the
prospect of Jaguar and Land Rover being a significant part of our automotive business. We
have enormous respect for the two brands and will endeavor to preserve and build on their
heritage and competitiveness, keeping their identities intact. We aim to support their
growth, while holding true to our principles of allowing the management and employees to
bring their experience and expertise to bear on the growth of the business."

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 highend premier segment of the global automobile market. After the acquisition, Tata Motors
would own the world's 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, for 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. The whole cost synergy that can be created
can be seen in the following diagram.

Some of the Synergies that exist are listed in the figures below:

Tata Steel - Corus

Tata Auto Component

Flagship company of TAMO's ancillary
business
Manufacturing, Engineering & Supply Chain
management
Customers include Global OEMs like Ford,
Daimler, Chrysler, FIAT

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

Jaguar Land
Rover
Tata Consultancy Services

INCAT

Provides services like engineering design,

manufacturing solutions and sourcing services
Automotive division accounted for 15%
revenues
Major customers are Chrysler, Ford and GM

Provides services like supplier program,

consulting services and global sourcing
Major customers are Chrysler, Ford, GM,

Honda and Nissan

2. Valuation Details
2.1
1

Assumptions:
Pre- merger mid-term Growth Rate - 2.2 %( 5 year
CAGR) Pre-Merger long term Growth Rate 1.5%
Synergy will be achieved in increased growth rate. So, Postmerger mid-term Growth Rate - 6 %( 5 year CAGR)

2.2

Premier Automotive Group of Ford has Volvo, Jaguar & LandRover brands. Jaguar &
LandRover brands make up for 2.5% of PAG sales

WACC Calculation:
Bond yield
Tax rate
After tax cost of Debt

6.48%
31.00%
4.47%

Beta,

3%
7.34%
1.25

re

8.46%

rf( US 10 yr. bond)

rm(2003-2013)

Market Cap
Debt(in mn)
wd
we
WACC

5628.00
168530
0.968
0.032
4.60%

C = Vt + VOC + Acquisition Premium due to synergy gains

Final value of JLR pre-merger comes out to be 1.958 billion dollars (refer excel sheet). The
synergy due to increase of control premium comes out to be 224.24 million dollars. Hence, the
consideration paid = 2.183 billion dollars (refer excel sheet for more details).

3. Financial Ascertainment

On June 2, 2008, Tata Motors completed the acquisition of Jaguar Land Rover from Ford
for a purchase consideration of US$ 2,300 million on cash free and debt free
basis. Jaguar Land Rover Limited, Tata Motors indirect subsidiary, paid the purchase
consideration. As part of the acquisition, the Company acquired the global businesses
relating to Jaguar Land Rover including three vehicle manufacturing facilities, one
veneer production facility, two advanced design centres, 26 national sales companies,
intellectual property rights (including perpetual royalty free licenses), and brands and
trademarks. The purchase consideration of US$ 2,300 million, on cash free and
debt free basis, paid by Jaguar Land Rover Limited was financed through a
capital contribution of US$ 400million and a portion of the proceeds from a
US$ 3,000 million short term bridge loan facility extended to Jaguar Land
Rover Limited.

The purchase consideration was based on an agreed level of working capital as

defined in the sale and purchase agreement entered into with Ford. In addition, US$
100 million was paid by TML Holdings Pte Limited towards fees and other
acquisition expenses consisting of legal and advisory fees, due-diligence and
related expenses, structuring fees, underwriters fees and other expenses in relation
to the short term bridge loan, and other acquisition related expenses.
A net cash position of US$ 93 million was estimated for Jaguar Land Rover as at the
date of acquisition. This amount represents additional net cash over the purchase
consideration basis and was paid additionally by Jaguar Land Rover Limited. The
same was financed out of the proceeds of the short term bridge loan. In addition, a
final adjustment relating to the actual cash, debt and working capital position (as
defined in the sale and purchase agreement) of Jaguar Land Rover on the date of
the acquisition, based on a final completion statement of Jaguar Land Rover agreed
between Jaguar Land Rover Limited and Ford, of US$ 131 million is payable by
Jaguar Land Rover Limited to Ford. This represents additional net working capital/
cash available with Jaguar Land Rover over the agreed levels.

3.1 Mode of Payment

The US$ 3,000 million short-term bridge loan facility extended to Jaguar Land
Rover Limited in connection with the acquisition of Jaguar Land Rover was pursuant
to a credit facility agreement dated March 13, 2008 with an initial group of
arrangers including the following:
1.
2.
3.
4.
5.
6.
7.
8.

Bank of Tokyo-Mitsubishi UFJ Limited

Citigroup Global Markets Asia Limited
ING Bank N.V., Singapore Branch
J.P. Morgan Securities (Asia Pacific) Limited
Mizuho Corporate Bank Limited
Standard Chartered Bank
State Bank of India
BNP Paribas, Singapore Branch

TML and TML Holdings Pte Limited were also obligors to the aforementioned credit

facility agreement, and TML provided a guarantee for the facility. Citicorp
International Limited acted as the Facility Agent.
Jaguar Land Rover Limited utilized US$ 1,900 million of the aforementioned
Short Term Bridge Loan towards part payment of the purchase
consideration for the acquisition of Jaguar Land Rover from Ford on cash
free and debt free basis.
In addition, a net cash position of US$ 93 million, representing additional net cash
over the purchase consideration basis, was estimated for Jaguar Land Rover as at
the date of the acquisition. Jaguar Land Rover Limited paid this amount additionally
out of the proceeds of the short term bridge loan. Further, US$ 700 million from the
proceeds from the short term bridge loan was utilized by Jaguar Land Rover Limited
for a short term working capital loan to its subsidiary, Land Rover. The balance
proceeds from the Short Term Bridge Loan are intended to be utilized by Jaguar
Land Rover Limited towards the ongoing operational/ contingency requirements of
Jaguar Land Rover.

4. Post Deal analysis

What happened next?
Significant slump in new car sales in late 2008 as a result of the credit crunch; Tata had to
refinance in order to keep JLR solvent. UK government considered a financial aid package,
indicating the strategic importance of JLR to the UK economy

February 2010:

Tata secures a 340million loan from the European Investment Bank to

support JLR through recession

May 2011:

Tata announces 5b five year investment programme in JLR - focused on new

product development & new equipment at JLR three UK plants + investment in a planned
factory in China. JLR also to link closer with Tata Steel to provide new lightweight steel
alloys for new car models.

November 2011:

JLR announces 1,000 new jobs a Land Rover plant in Solihull boosted by
rising demand for SUVs in China, Russia, India and Brazil.

February 2012: 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. China overtakes the UK as JLRs biggest
market.

March 2012:

JLR and Chery Automobile agree a joint venture that should pave the way for
production of Jaguar and Land Rover cars in China.

April 2012:

JLR announces that it will build a successor to its previous sports cars called the Ftype at its factory in Birmingham.

4.1 Post-Merger Initiatives

Post-Merger, several cost rationalization 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

5. Labour Actions
a. Voluntary retirement to 600 employees
b. Agency staff reduced by 800
c. Offered leaves to 300 workers of Bromwhich and Solihull plant
d. Additional 450 job cuts including 300 managers
6. Agreement with Unions to implement pay freeze and longer working hours
5. (Equivalent to approximately 20% reduction in labour 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

4.2

Analysis of the strategic rationale for merger:

According to US, the brand JLR has not fallen into the wrong hands, looking at Tata Motors
legacy, the company is remolding the future of these two international luxury brands. The
sales of Jaguar have picked up in India and Tata Motors has been successful in
reinvigorating the luxury car segment in India. Tata Motors set-up an integration committee
with senior executives from the JLR and Tata Motors, to set milestones and long-term goals
for the acquired entities this strategy has paid off since sales of Jaguar has picked up and
so has the image of Tata Motors post the merger and the Nano launch. One of the major
problems for Tata Motors could be the slowing down of the European and US automobile
markets. We expect that the company would address this issue by concentrating on
countries like Russia, China, India, and the Middle East. The figure below shows, the Tata
Motors advantage for becoming a world class automotive company:

Combining capabilities and cost

advantage to emerge as a world
class automotive company

Over 100 new products/variants are

planned for introduction in coming 4-5
years

Develop expertise through strategic

alliance/ acquisition

About 150% increase in customer

touch points across India

Prudent capital investment policy and

aggressive cost reduction

Improve revenue stability through

geographical expansion and growing
noncyclical auto segments

Continue to grow the non-vehicle

business

The companies investment plans, new designs with a scope for alternate energy usage, the
new target markets and retaining the best both production units and talents, hiring fresh
talents from around the world is definitely going to make the company gain a strong
foothold globally.
Tata JLR deal is believed to be a huge success all around. Some of the views from reputed
journals:-

http://www.forbes.com/sites/kenrapoza/2012/04/18/for-tata-motors-jaguar-a-goldmine/

2012: Share price of Tata Motors makes it the-best performing major car maker (up 70%)
JLR worth $14 billion, according to the average estimate of three analysts surveyed by
Bloomberg

http://www.economist.com/node/21548965

There has been one triumph; JLR, where earnings have soared despite a near-death
experience after the 2008 crash. A chunk of the recovery is due to the fall of the pound:
JLRs plants are mainly in Britain, though it sells largely in other countries. But that is not
the whole story. Under Tatas ownership JLR has also launched a killer product, the Range
Rover Evoque, and cracked emerging markets, not least China.

http://www.theguardian.com/business/blog/2013/may/29/jaguar-land-rover-tatamotors

5. Conclusion:
Record sales, revenues and profits are getting unveiled at Jaguar Land and this has been a
stunning success story for the Midlands car maker.
JLR is beginning to look like the deal of the century for its Indian owner, Tata Motors, which
bought the business barely six years ago for less than the UK firm made in profits over the
last 12 months.
And while the core Tata business has struggled to cope with a pot-holed local market, the
luxury autos churned out at Castle Bromwich and other plants are being sold as quickly as
they can be produced. JLR and other foreign-controlled businesses such as the BMW's Mini,
Nissan at Sunderland and Honda at Swindon have enabled UK to export more cars than it
imports for the first time in more than 35 years: all in the middle of a massive European
economic downturn .Of course there was no China or Asian Pacific market in the bad old
days, but Tata has driven JLR to its current heights partly through better management,
serious investments in new models and sheer ambition.