Tata Group Case Study

8/2/2019 Tata Group Case Study

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Tata Groups Top M&A Deals

Acquirer Target Sector Stake(%)

Price (US$million) Date

TataChemicalsLimited

GeneralChemicalsIndustrialProductsInc.

Plastic andChemicals

100 1005 27-03-2008

TATAMotors

JaguarLand

Rover

Automobile 100% 2,300.00 27-03-08

TATASteel ltd

Corussteel

Steel 100% 12201 30-03-07

TATAPower

PT-KaltimPrima Coal

Coal &mines

30% 1100 30-03-07

NTT-Docomo

Tata-Teleservices ltd.

Tele-Communications

26% 2700 13-11-08

9.2 TATA MOTOR - JLR

About the acquisition

Date: - 27th March 2008

Acquirer: - Tata Motors Ltd

Target company: - Jaguar Land Rover

Stake: - 100 %

Deal amount: - US$ 2300m

Sector: - Automotive

TATA MOTORS


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Tata Motors Limited is India's largest automobile company, with

consolidated revenues of Rs.70,938.85 crores (USD 14 billion) in

2008-09

It is the leader in commercial vehicles segment, and among the topthree in passenger vehicles

It is the world's fourth largest truck manufacturer, and the world's

second largest bus manufacturer

The company's 24,000 employees are guided by the vision to be

"best in the manner in which we operate, best in the products we

deliver, and best in our value system and ethics"

Over 4 million Tata vehicles ply on Indian roads, since the first

rolled out in 1954

It has manufacturing base in India spread across Jamshedpur

(Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh),

Pantnagar (Uttarakhand) and Dharwad (Karnataka)

The company's dealership, sales, services and spare parts network

comprises over 3500 touch points

Tata Motors also distributes and markets Fiat branded cars in India

Tata Motors, the first company from India's engineering sector to be

listed in the New York Stock Exchange (September 2004), has also

emerged as an international automobile company

It has operations in the UK, South Korea, Thailand and Spain

In 2004, it acquired the Daewoo Commercial Vehicles Company,

South Korea's second largest truck maker

In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a

reputed Spanish bus and coach manufacturer, and subsequently the

remaining stake in 2009. Hispano's presence is being expanded in

other markets

In 2006, Tata Motors formed a joint venture with the Brazil-based

Marcopolo, a global leader in body-building for buses and coaches to

manufacture fully-built buses and coaches for India and select

international markets


3/16

Tata Motors is also expanding its international footprint, established

through exports since 1961

The company's commercial and passenger vehicles are already

being marketed in several countries in Europe, Africa, the MiddleEast, South East Asia, South Asia and South America

In January 2008, Tata Motors unveiled its People's Car, the Tata

Nano, which India and the world have been looking forward to

JAGUAR LAND ROVER

Jaguar Cars Ltd, founded in 1922, is one of the worlds premier

manufacturers of luxury saloons and sports cars

Since 1948 Land Rover has been manufacturing authentic 4*4s that

definesbreadth of capability in their segments

The Jaguar Land Rover business employs some 16000 people,

predominately in the UK, including some 3500 engineers at two

product development centres in Whitley, Coventry and Gaydon,

Warwickshire

The business is a major wealth generator for the UK Jaguars

exported to 63 countries, with sales to customers conducted

principally through franchised dealers and importers

That Jaguar and Land Rover are two of the most well-known

automotive names in the world, and that Ford had acquired them

for a collective cost of about $5 billion almost a decade earlier, Tata

Motors seems to have got them at a steal at $2 billion

Terms

Under the terms of the deal Ford will contribute about $600 m to JLR

pension plan. Ford will continue to supply JLR for differing periods with

engines, stamping and other car components, in addition to a variety of

technologies. In addition Ford Motor Credit Company will provide

financing for JLR and customers during a transitional period upto 12

months.


4/16

Detailed Case Study

Acquisition of British Icons

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.

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 JLR, 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.

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$ 2.5b.

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.


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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, after Allan Mulally

(Mulally) assumed charge as the President and CEO of Ford, he decided todismantle 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.

Tata Motors also entered into long term agreements with FMC for supply

of engines, stampings and other components to JLR. Other areas of

transition support from Ford include IT, accounting and access to test

facilities. The two companies will continue to cooperate in areas such as

design and development through sharing of platforms and joint

development of hybrid technologies and power train engineering.

The Ford Motor Credit Company, the credit providing arm of FMC, will

continue to provide financing for Jaguar Land Rover dealers and

customers for a transition period lasting for a period of 12 months. Tata

Motors is in an advanced stage of negotiations with leading auto finance

providers to support the Jaguar Land Rover business in the UK, Europe

and the US, and is expected to select financial services partners shortly.

Financing the deal

On March 26 2008, Tata Motors entered into an agreement with Ford for

the purchase of JLR. Tata Motors agreed to pay US$ 2.3 billion in cash for

a 100% acquisition of the business of JLR. As part of the acquisition, Tata

Motors did not inherit any of the debt liabilties of JLR the acquisition was

totally debt free.

Tata Motors raised $3 billion (about Rs. 12000 crore) through bridge loans

for 15 months from a clutch of banks, including JP Morgan, Citigroup, and

SBI


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The Company chartered out plans to raised Rs,7200 crore through three

simultaneous but unlinked rights issue, the proceeds of which will be used

to part-finance the JLR deal of Rs.9228.75 crore. The precise terms of the

issue (the ratio at which these securities will be offered, offer price andthe conversion price) will be decided when the issue are ready to be made

The rights issue will raise the equity capital of Tata Motors by 30-35

percent by March 2009. The company also plans to raise $500-600 million

through an issue of securities in the foreign markets. The company will

share the date of listing at a later date.

The acquisition of JLR was done through the companys wholly owned

subsidiary TML Holdings (UK).

The Challenges

Morgan Stanley reported that JLR's 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. Moreover, Tata Motors had to incur a huge capital expenditure as

it planned to invest another US$ 1 billion in JLR. This was in addition to

the US$ 2.3 billion it had spent on the acquisition. Tata Motors had also

incurred huge capital expenditure on the development and launch of the

small car Nano and on a joint venture with Fiat to manufacture some of

the company's vehicles in India and Thailand. This, coupled with the

downturn in the global automobile industry, was expected to impact the

profitability of the company in the near future

The Road Ahead

Tata Motors had formed an integration committee with senior executives

from the JLR and Tata Motors, to set milestones and long-term goals for

the acquired entities. One of the major problems for Tata Motors could be

the slowing down of the European and US automobile markets. It was

expected that the company would address this issue by concentrating on

countries like Russia, China, India, and the Middle East.


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IMPACT ON SHAREHOLDERS WEALTHPre Acquisition Post Acquisition

Date Open Price Date Open Price

22-Feb-08 #### 28-Mar-08 ####

25-Feb-08 #### 31-Mar-08 ####

26-Feb-08 #### #### 1-Apr-08 #### ####

27-Feb-08 #### #### 2-Apr-08 #### ####28-Feb-08 #### #### #### 3-Apr-08 #### #### ####

29-Feb-08 #### #### #### 4-Apr-08 #### #### ####

3-Mar-08 #### #### #### #### 7-Apr-08 #### #### #### ####

4-Mar-08 #### #### #### #### 8-Apr-08 #### #### #### ####

5-Mar-08 #### #### #### #### #### 9-Apr-08 #### #### #### #### ####

7-Mar-08 #### #### #### #### #### 10-Apr-08 #### #### #### #### ####

10-Mar-08 #### #### #### #### #### #### 11-Apr-08 #### #### #### #### #### ####

11-Mar-08 #### #### #### #### #### 15-Apr-08 #### #### #### #### ####

12-Mar-08 #### #### #### #### #### 16-Apr-08 #### #### #### #### ####

13-Mar-08 #### #### #### #### 17-Apr-08 #### #### #### ####

14-Mar-08 #### #### #### #### 21-Apr-08 #### #### #### ####

17-Mar-08 #### #### #### 22-Apr-08 #### #### ####

18-Mar-08 #### #### #### 23-Apr-08 #### #### ####

19-Mar-08 #### #### 24-Apr-08 #### ####

24-Mar-08 #### #### 25-Apr-08 #### ####

25-Mar-08 #### 28-Apr-08 ####

28-Mar-08 #### 29-Apr-08 ####

Pre Acquisition Post Acquisition

Date Close Price Date Close Price

22-Feb-08 #### 28-Mar-08 ####

25-Feb-08 #### 31-Mar-08 ####

26-Feb-08 #### #### 1-Apr-08 #### ####

27-Feb-08 #### #### 2-Apr-08 #### ####

28-Feb-08 #### #### #### 3-Apr-08 #### #### ####

29-Feb-08 #### #### #### 4-Apr-08 #### #### ####

3-Mar-08 #### #### #### #### 7-Apr-08 #### #### #### ####

4-Mar-08 #### #### #### #### 8-Apr-08 #### #### #### ####

5-Mar-08 #### #### #### #### #### 9-Apr-08 #### #### #### #### ####

7-Mar-08 #### #### #### #### #### 10-Apr-08 #### #### #### #### ####

10-Mar-08 #### #### #### #### #### #### 11-Apr-08 #### #### #### #### #### ####

11-Mar-08 #### #### #### #### #### 15-Apr-08 #### #### #### #### ####12-Mar-08 #### #### #### #### #### 16-Apr-08 #### #### #### #### ####

13-Mar-08 #### #### #### #### 17-Apr-08 #### #### #### ####

14-Mar-08 #### #### #### #### 21-Apr-08 #### #### #### ####

17-Mar-08 #### #### #### 22-Apr-08 #### #### ####

18-Mar-08 #### #### #### 23-Apr-08 #### #### ####

19-Mar-08 #### #### 24-Apr-08 #### ####

24-Mar-08 #### #### 25-Apr-08 #### ####

25-Mar-08 #### 28-Apr-08 ####

28-Mar-08 #### 29-Apr-08 ####

Tata Jaguar

674.16

625.13

600.00

620.00

640.00

660.00

680.00

Open Price


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Tata Jaguar

666.86

624.43

600.00

620.00

640.00

660.00

680.00

Clo sing Price


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Date Total Turnover(Rs.) Mn Date Total Turnover(Rs.) Mn

22-Feb-08 58.6 28-Mar-08 888.7

25-Feb-08 71.2 31-Mar-08 123.6

26-Feb-08 37.5 57.6 1-Apr-08 138.9 326.727-Feb-08 54.0 103.5 2-Apr-08 373.7 163.3

28-Feb-08 66.7 110.6 106.5 3-Apr-08 108.5 153.9 174.1

29-Feb-08 287.9 125.0 124.0 4-Apr-08 71.6 130.3 125.3

3-Mar-08 106.9 136.0 123.9 119.0 7-Apr-08 76.6 96.3 107.4 115.1

4-Mar-08 109.5 145.0 121.6 120.4 8-Apr-08 20.9 82.7 89.8 93.8

5-Mar-08 108.9 102.9 119.2 116.5 115.7 9-Apr-08 204.0 73.7 78.8 80.8 84.7

7-Mar-08 112.0 98.9 113.6 112.7 113.4 10-Apr-08 40.2 65.8 67.9 70.5 73.1

10-Mar-08 77.3 113.0 104.6 109.9 110.4 111.4 11-Apr-08 27.0 75.6 60.3 63.2 65.2 67.9

11-Mar-08 87.0 108.0 104.9 107.2 108.5 15-Apr-08 37.0 41.7 55.9 57.2 59.8

12-Mar-08 179.7 100.0 107.2 105.8 108.8 16-Apr-08 69.9 44.6 53.2 54.2 56.7

13-Mar-08 84.0 104.5 105.9 106.8 17-Apr-08 34.5 51.6 48.7 53.7

14-Mar-08 72.1 110.3 106.7 114.2 21-Apr-08 54.4 52.3 53.0 55.1

17-Mar-08 99.5 106.7 109.1 22-Apr-08 62.3 53.1 57.8

18-Mar-08 116.3 112.3 142.2 23-Apr-08 40.4 63.6 62.719-Mar-08 161.5 111.9 24-Apr-08 74.2 68.4

24-Mar-08 112.0 269.8 25-Apr-08 86.9 75.8

25-Mar-08 70.4 28-Apr-08 78.2

28-Mar-08 888.7 29-Apr-08 99.5

Tata Jaguar

111.36

67.89

-

50.00

100.00

150.00

Turnover


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Date High Price Date High Price

22-Feb-08 710.0 28-Mar-08 660.0

25-Feb-08 709.0 31-Mar-08 645.0

26-Feb-08 714.0 712.7 1-Apr-08 633.0 647.0

27-Feb-08 715.9 714.1 2-Apr-08 645.0 644.0

28-Feb-08 714.5 714.3 713.5 3-Apr-08 652.0 642.0 643.2

29-Feb-08 717.4 713.7 712.8 4-Apr-08 644.8 642.5 641.43-Mar-08 709.8 712.8 710.2 708.9 7-Apr-08 635.0 640.4 639.8 640.0

4-Mar-08 710.8 709.1 706.5 704.9 8-Apr-08 636.0 638.0 638.5 638.5

5-Mar-08 711.7 701.2 701.4 699.4 698.0 9-Apr-08 634.5 635.8 637.0 637.0 637.2

7-Mar-08 696.0 695.5 693.8 692.5 691.2 10-Apr-08 640.0 635.7 635.6 635.7 635.9

10-Mar-08 677.8 688.3 685.0 684.3 683.5 683.1 11-Apr-08 633.8 635.2 634.2 634.6 634.9 635.2

11-Mar-08 681.0 675.1 675.7 675.1 675.3 15-Apr-08 634.5 633.1 633.4 633.7 634.2

12-Mar-08 675.0 664.7 665.4 666.2 667.4 16-Apr-08 633.0 631.3 632.7 633.3 634.0

13-Mar-08 645.5 655.2 655.6 658.6 17-Apr-08 624.0 631.5 632.6 633.7

14-Mar-08 644.3 643.6 649.4 652.9 21-Apr-08 631.5 632.2 633.8 634.7

17-Mar-08 630.0 639.5 646.8 22-Apr-08 634.7 634.6 635.9

18-Mar-08 623.0 643.9 647.4 23-Apr-08 638.0 639.4 638.5

19-Mar-08 654.9 651.9 24-Apr-08 644.9 641.7

24-Mar-08 667.5 657.9 25-Apr-08 648.0 644.5

25-Mar-08 684.0 28-Apr-08 643.0

28-Mar-08 660.0 29-Apr-08 648.4


Date Low Price Date Low Price

22-Feb-08 690.3 28-Mar-08 634.6

25-Feb-08 695.0 31-Mar-08 620.0

26-Feb-08 700.0 698.3 1-Apr-08 615.5 624.7

27-Feb-08 705.0 697.9 2-Apr-08 632.2 617.7

28-Feb-08 701.0 696.1 696.0 3-Apr-08 621.1 615.5 617.9

29-Feb-08 688.3 694.3 693.2 4-Apr-08 600.0 617.0 615.9

3-Mar-08 686.0 693.3 688.7 687.5 7-Apr-08 609.0 614.6 616.1 616.6

4-Mar-08 691.3 684.7 683.2 681.5 8-Apr-08 623.0 614.6 616.6 616.2

5-Mar-08 700.0 675.1 676.2 674.0 672.8 9-Apr-08 620.1 618.6 616.3 616.3 616.2

7-Mar-08 658.0 668.9 665.9 665.5 664.5 10-Apr-08 621.0 618.0 616.3 616.1 616.1

10-Mar-08 640.0 659.0 655.9 655.8 655.5 655.6 11-Apr-08 620.0 615.6 616.2 615.9 616.1 616.3

11-Mar-08 655.1 642.0 646.0 645.7 646.6 15-Apr-08 606.0 614.6 615.2 615.9 616.3

12-Mar-08 642.0 634.5 635.1 636.7 638.4 16-Apr-08 611.0 614.4 615.3 616.4 617.0

13-Mar-08 615.0 625.7 625.5 629.4 17-Apr-08 615.0 613.4 616.5 617.4

14-Mar-08 620.4 614.3 620.7 624.4 21-Apr-08 620.0 618.6 618.7 619.3

17-Mar-08 596.2 610.9 619.4 22-Apr-08 615.0 621.5 621.3

18-Mar-08 598.0 618.1 621.4 23-Apr-08 632.1 625.5 624.7

19-Mar-08 625.0 628.1 24-Apr-08 625.5 627.3

24-Mar-08 651.1 635.7 25-Apr-08 635.1 630.3

25-Mar-08 670.0 28-Apr-08 628.9

28-Mar-08 634.6 29-Apr-08 630.0


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INTERPRETATION

The calculation of five days moving average for the previous as well as

later month from the date of merger is shown. It takes into account the

open, high, low, close, daily turnover as well as calculation of abnormal

return. This takes into account the daily volatilities of the share prices.

Here, the daily average prices have fallen in terms of all prices and

even the turnover has decreased. This shows that the investors are

not happy with the valuation of merger and so the overall sentiment

among the investors is very poor. There are certain shareholders

who expect the share prices to fall even much more as compared to

actual fall that has taken place and so they have reduced trading

activities and tried to sell and come out of the situation as soon as

possible.

Tata Jaguar

683.08

635.22

600.00

620.00

640.00

660.00

680.00

700.00

High Price

Tata Jaguar

655.57

616.35

580.00

600.00

620.00

640.00

660.00

Low Price


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COMPANYS RETURN BEFORE AND AFTER ACQUISITION


13/16

Pre Acquisition

Date Ex. Return Abnormal Return Cumm. Ab. Return

2/25/2008 1.75% -0.01% -0.01%

2/26/2008 0.89% -0.01% -0.02%

2/27/2008 0.12% -0.01% -0.03%2/28/2008 0.00% -0.01% -0.04%

2/29/2008 -1.37% -0.01% -0.05%

3/3/2008 -5.12% 0.00% -0.05%

3/4/2008 -2.02% -0.01% -0.06%

3/5/2008 1.25% -0.01% -0.07%

3/7/2008 -3.42% -0.01% -0.08%

3/10/2008 -0.31% -0.01% -0.09%

3/11/2008 1.26% -0.01% -0.10%

3/12/2008 0.04% -0.01% -0.11%

3/13/2008 -4.77% 0.00% -0.11%

3/14/2008 2.64% -0.01% -0.13%

3/17/2008 -6.03% 0.00% -0.13%

3/18/2008 0.17% -0.01% -0.14%

3/19/2008 1.10% -0.01% -0.15%

3/24/2008 1.98% -0.01% -0.16%

3/25/2008 6.09% -0.02% -0.18%3/28/2008 0.96% -0.01% -0.19%

Post Acquisition

Date Ex. Return Abnormal Return Cumm. Ab. Return

3/31/2008 -4.40% -0.04% -0.04%

4/1/2008 -0.11% 0.00% -0.04%

4/2/2008 0.79% 0.00% -0.03%

4/3/2008 0.52% 0.00% -0.03%

4/4/2008 -3.06% -0.03% -0.06%

4/7/2008 2.68% 0.02% -0.04%

4/8/2008 -1.07% -0.01% -0.05%

4/9/2008 1.29% 0.01% -0.04%4/10/2008 -0.60% -0.01% -0.05%

4/11/2008 0.71% 0.00% -0.04%

4/15/2008 2.17% 0.02% -0.03%

4/16/2008 0.56% 0.00% -0.02%

4/17/2008 1.45% 0.01% -0.01%

4/21/2008 1.55% 0.01% 0.00%

4/22/2008 0.27% 0.00% 0.00%

4/23/2008 -0.51% -0.01% -0.01%

4/24/2008 0.14% 0.00% -0.01%

4/25/2008 2.40% 0.02% 0.01%

4/28/2008 -0.64% -0.01% 0.01%

4/29/2008 2.11% 0.02% 0.02%


14/16

INTERPRETATION

As we can see from the line chart that the cumulative return before

merger was negative and the entire trend is moving in the negative

direction due to poor returns of tata motors.

A soon as the acquisition took place, the highly profit generating Jaguar

as well as Land Rover added to the profit and earnings of the tata motors.

The brand value of JLR added to the highly reputable Tata Group and the

companys balance sheet. This can be clearly seen in the line chart above.

-0.25%

-0.20%

-0.15%

-0.10%

-0.05%

0.00%

2/25

/08

2/27

/08

2/29

/08

3/2/08

3/4/08

3/6/08

3/8/08

3/10/08

3/12/08

3/14/08

3/16/08

3/18/08

3/20

/08

3/22

/08

3/24

/08

3/26

/08

3/28

/08

Cumm. Ab. Return

-0.07%

-0.06%

-0.05%

-0.04%

-0.03%

-0.02%

-0.01%

0.00%

0.01%

0.02%

0.03%

3/31/08

4/2/08

4/4/08

4/6/08

4/8/08

4/10/08

4/12/08

4/14/08

4/16/08

4/18/08

4/20

/08

4/22

/08

4/24

/08

4/26

/08

4/28

/08


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RATIO ANALYSIS

TATA MOTORS (27- 03 2008) Pre-

acquisition

Post-

acquisition

Change (%)

Debt-Equity Ratio 0.56 0.97 42.27

ROCE (%) 30.52 6.88 -343.60

net profit margin 6.88 11.47 40.02P/E 15.45 9.59 -61.11

ROE(%) 30.98 5.34 -480.15

EPS 47.1 18.81 -150.40

OPM(%) 11.16 7.89 -41.44

INTERPRETATION

Debt equity ratio is increasing by 42.27% as Tata took loan of banks toacquire JLR.ROCE increases vey high by 343.60% as compared to preacquisition as it gauges that company that generate its earnings from thetotal pool of capital which indicates profitability.Net profit marginincreases as it income increases in post acquisition as compared to preacquisition. P/E highly decreases in post acquisition by 60.1% which ininvestor point of view they will be profitable to invest to get high earning.ROE is highly increasing by 480.15% which shows that it has more equitythan debt. EPS is increasing drastically by 480.15% which is veryprofitable for investors. Operating profit margin is reduced by 41.44%which shows that company profit margin is very less.

TATA MOTORS 27- 03 2008 pre

TATA MOTORS 27- 03 2008

post


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This question is answered by the latest financial results of JLR. The key financialmetricsfrom their statements show a rosy picture. The acquisition had really paid offin terms offinancial stability of JLR

Tata Group Case Study

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