Mergers And Acquisition- Tata-jlr @ Garg

Mergers & Acquisition Submitted To: Prof. R. Sahu Submitted By: Jitesh Maharwal(2004IPG44) Nikhil Garg(2004IPG29) Sunny Tyagi(2004IPG71) Harendra Singh (2004IPG83)

Tata Motors: Acquisition of Jaguar &

Ford Motors Company •Location: Dearborn, Michigan •Founded: 1903 by Henry Ford •Competitors: General Motors, Toyota •Brand names: Lincoln, Mercury, Volvo, Mazda, Jaguar and Land Rover •CEO: Alan Mulally

Henry Ford and his Model T

Top Seven Auto and Truck Manufactures Organized by Market Capitalization As of April 22, 2008

Jaguar: The ups and downs • • • • • • • • •

1922 - Founded in in Blackpool as Swallow Sidecar company 1960 - Jaguar name first appeared in 1935 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 Ford’s formula one entry since 1990s

The case of Land Rover • • • • • • • •

1948: Land Rover is designed by the Rover Car co 1976: One millionth Land Rover leaves the production line 1994: Rover Group is taken over by BMW 2000: Sold to Ford for £1.8 billion Known for superior off-road performance Used by military for projects and expeditions Safe but less reliable Makeover in recent times

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

The Deal Process • India’s 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

TATA MOTORS – A SNAPSHOT • TATA GROUP – 150 YEAR OLD • Previously Tata Engineering and Locomotive Company, Telco • Tata Motors’s break-even point for capacity utilization is one of the best in the industry worldwide • listed on the New York Stock Exchange in 2004

Making Waves Internationally • NANO will mark the advent of India as a

global centre for small-car production and represent a victory for those who advocate making cheap goods for potential customers at the 'bottom of the pyramid' in emerging markets. • International praise came from Standard & Poor’s, which in December 2006 expressed the view that the “policy to support its companies and the improved financial profile of its entities also

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. jaguar has been a dog i.e. it has not been able to provide any profit for ford because of the high manufacturing costs provided in the united kingdom. • The strong boy 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,” analysts said. It’s a test that Ford failed. • Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar is so intertwined.

Why acquire JLR?

Is TATA catching a falling knife…or

• Long term strategic commitment to automotive sector. • Opportunity to participate in two fast growing auto segments. • Increased business diversity across markets and products. • Land rover provides a natural fit for TML’s suv segment. • Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portfolio. • Benefits from component sourcing,design services and low cost engineering.

Tata and the dream… •

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NEED FOR GROWTH In the past few years, the Tata group has led the growing appetite among Indian companies to acquire businesses overseas in Europe, the United States, Australia and Africa - some even several times larger - in a bid to consolidate operations and emerge as the new age multinationals. Tata Motors is India's largest automobile company, with revenues of $7.2 billion in 2006-07. With over 4 million Tata vehicles plying in India, it is the leader in commercial vehicles and the second largest in passenger vehicles. 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

WHAT IS TATA PAYING FOR ????

Valuation of deal

Cost synergies • Material costs and not manpower key to better margins. • Investors concerns on manpower costs misplaced • – Investors apprehensive that TAMO has agreed to continue with plants in UK • 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

Cost synergies • 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 Tata Technologies have varied competencies in the Auto space • We believe an improvement of 50-70bps in EBITDA margin possible in JLR over the next 2 years (current EBITDA margin) • We estimate CY2007 EBITDA margin of JLR at around 6.5% – This could make the acquisition PAT accretive in CY2009/FY10E

Revenue synergies - A long-term possibility • Revenue synergies limited in the medium term (2-3 years) • 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)

TAMO + JLR: Leverage and Valuation ratios q Leverage increases but coverage ratios reasonable • Headline Debt/Equity of TAMO would increase to 2.5x from 1x • Excluding the vehicle finance biz, leverage would go to 1.2x • EBITDA/Interest remains at 5.0 q TAMO is trading inline/modest discount to global peers • EV/Sales (1-yr forward) of 0.5x against 0.4x for global peers • P/E (1-yr forward) of 6.5x against 8.5x for global peers

 

TAMO + JLR: Proforma P&L

TAMO + JLR: Proforma Balance Sheet (CY2008/FY2009E)

TAMO + JLR: Proforma Cashflow(CY2008/FY2009E)