Tata Motors’ acquisition of Daewoo Commercial Vehicle Company

Case Summary

The Tata Daewoo Commercial Vehicle Company (TDCV) is South Korea's second largest manufacturer of medium
and heavy-duty trucks. Daewoo Commercial Vehicle Company (‘DCVC’), part of the Daewoo Group was acquired
In February 2004 for USD 102mn by Tata Motors.

The trucking industry saw a wave of consolidation in 1990s and by 2004 the DaimlerChrysler Group was the largest
truck manufacturer in the world with annual sales of 420,000 units. Truck manufacturing required more customization
and was thus regarded as a local or regional industry rather than a global industry. Most developed countries had a
stable demand for trucks in 1990s with growth to be driven by increase in demand in emerging countries especially in
Asia.

Tata Motors (‘TM’) was established in 1945 as an engineering and locomotive firm. By 2003 TM was the largest
manufacturer of medium and heavy commercial vehicles in India with a market share of 60% and offered more than
100 models of light and medium trucks, buses, SPV etc. The Indian truck market had been growing at 30% after 2002
but was expected to slow down to 10% in the medium term. It was perceived TM had reliable but not technologically
advanced trucks and thus TM launched a “World Truck” program which aimed to introduce a full range of trucks by
2008.

Established in 1982 as the Daewoo Motor Company, the business was spun off as Daewoo Commercial Vehicle
Company in 2002. DCVC produced more than 90 truck models in the heavy commercial vehicle range (210 – 400 hp
engine) and had the second largest market share in heavy trucks in Korea by 2003.

TM believed that acquiring DCVC would allow TM to save up to 2 years and considerable costs in the development
of its “World Truck” program. It would also act as a hedge against the cyclical nature of the truck business and provide
access to technology and complementary product range.

DCVC is hesitant to sell to a foreign company. The TM team spends a lot of time and effort in educating DCVC about
TM and accommodating some of the trade union demands. TM is successful in creating a positive perception and
becomes the preferred bidder for DCVC. It manages to acquire DCVC for USD 102mn much below its previously
anticipated price of USD 203mn.
Theory required for solving problem

Table: Alternative market-entry strategies

Successful cross border acquirers:

1. Buy targets in core business

2. Seek strong local performers
3. Create multiple acquisitions, not one-off deals
4. Significant skill transfer to and fro from the acquired company

9 3 0
Fai
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Suc 14 1 1
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Cohave high success
Programs in core business Re rate- Number
Unreof companies
Source: Succeeding latM&A, Joel Bleeke
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Deal rationale (Strategic fit)

 Opportunity to hedge cyclicality of domestic CV business

 Enhance product portfolio and expand product range
 Managing operations in developed quality sensitive markets
 Access to technology and complementary product range
 Access new markets – Korea/ China
 Allow TM to save up to 2 years and considerable costs in the development of its “World Truck” program –
reduce development time and mitigate financial and marketing risks.

DCVC TM
Major markets South Korea India
% exported 43% 10%
Product range Heavy Trucks (15 to 45 tons) Light and medium trucks (2 to 40 tons)
Engine types 210-420 hp 50-210 hp
Engine source Doosan Infracore Company, Cummins In-house through JV with Cummins
Major Drive Train Sourced externally Internal Manufacture
components

Problem identification

DCVC preferred to be acquired by a European firm with technological and financial resources that DCVC required.
The DCVC union demanded no layoffs for the first 3 years after acquisition.

Problem mitigation

1. Structured program to educate DCVC about India and the Tata Group- TM translated all its bid and company
material into Korean made available to the company within 72 hours. Presentations to management, trade
unions, government and various ministries and bodies were made in Korean.
2. TM’s communication was managed taking into consideration the more hierarchical structure of DCVC and
it was ensured that senior managers were not undermined by direct communication with subordinates. TM’s
communication was focused on 2 key messages:
a. Strong global connectivity: Partnerships with leading truck and automotive companies provided
access to technology. 6th largest commercial vehicle manufacturer in the world and manufactured
key components in house.
b. Strong corporate governance, good reputation for ethical management along with long term success
despite being a family owned business.
3. Korea has a strong work ethic and the TM made efforts to demonstrate its own strong culture and work ethic.
4. TM agreed to the union demand after careful evaluation and knowledge gained from visiting foreign buyers
of other Korean firms.
Findings

The M&A was hailed as a great success and a model for future acquisitions. The combination of TM &DCVC
created the fifth largest manufacturer of medium and heavy trucks in the world. A number of events took place post
acquisition:

 In 2005, DCVC launched a new range of medium trucks, its first major product in a decade and the first
time the firm offered products outside the heavy truck segment
 In 2004 exports doubled and in 2005 accounted for 66% of total heavy truck exports from Korea to
primarily South Africa and Middle East.
 No sign of union unrest and DCVC’s transfer to new owner had been almost painless
 TM launched a new assembly facility in India for DCVC’s Novus Truck
 Financial performance was strong and improved over the years as can be seen below. Exports saw a growth
of CAGR of ~86% from FY05-FY07.

Source: Tata motors, http://www.dnb.co.in/FESConfTool/Uploads/Presentations/85/Mr.P.P.Kadle.pdf