Tata Motors is the largest multi-holding automobile company in India and it is the fourth largest truck producer in the world. In addition, Tata Motors is also the second largest bus producer in the world, with the revenues of US$ 8.8 billion in the financial year 2008. Since its establishment in 1945, Tata Motors has grown significantly in the past 60years with the strategies of joint venture, acquisition and launched new products in different market segments (i.e. passenger cars, commercial vehicles and utility vehicles). A significant breakthrough for Tata was the development and commercialization of the truly Indian cars and they are Tata Indica (1998) and Tata Indigo (2002).
Tata Motors has experienced many joint ventures with Daimler Benz, Cummis Engine Co. Inc., and Fiat. In the year 2008, there were two most significant events which have had a momentous impact on the scale of the Company’s operations and its global image. The launching of Tata Nano, the world cheapest car and the acquisition of Jaguar and Land Rover, the two iconic British brand have made Tata Motors well known to the people in the world.
Tata Motors has proven excellence over the years through continuous strong financial results, market expansion, acquisition, joint ventures and improvement and introduction of new products, it seems to have a promising future. But it failed the expectation as the company was in trouble right after the acquisition of Jaguar and Land Rover (JLR) in June 2008 due to the arrival of global financial crisis. The bridge loan of US$ 3 billion which used to fund the acquisition of JLR was due on June 2009 and yet at the end of the year 2008, Tata was only able to repay the US$ 1 billion. The declining revenues and a tight credit conditions was hurting the company’s cash flow.
Tata Motor’s Acquisition of Jaguar and Land Rover
On June 02, 2008, India-based Tata Motors completed the acquisition of the Jaguar and Land Rover (JLR) units from the US-based auto manufacturer Ford Motor Company (Ford) for US$ 2.3 billion, on a cash free-debt free basis. 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.
Forming a part of the purchase consideration were 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 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. 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.
Analysts were of the view that the acquisition of Jaguar and Land Rover, which had a global presence and a repertoire of well established brands, would help Tata Motors become one of the major players in the global automobile industry.
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.” Ford had bought Jaguar for US$ 2.5 billion in 1989 and Land Rover for US$ 2.7 billion in 2000. However, over the years, the company found that it was failing to derive the desired benefits from these acquisitions.
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.
Benefits
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 high-end 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 eg, 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. Five, in the long run TATA Motors will surely diversify its present dependence on Indian markets (which contributed to 90% of TATA’s revenue). Along with it due to TATA’s footprints in South East Asia will help JLR do diversify its geographic dependence from US (30% of volumes) and Western Europe (55% of volumes).
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