strategic management project on tata take over jaguar
TRANSCRIPT
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EXECUTIVE SUMMARY
I begin my project by throwing light on the various concepts of acquisition. The Tata
and JLR acquisition is very well know and big achievement for tata and Indian as well.
It’s one of the best deals for Tata group.tata more benefit for this deal. Tata improve
their goodwill in market and also enjoy competitive advantages in market form biggest
competitors.
In June 2008, India-based Tata Motors Ltd. announced that it had completed the
acquisition of the two iconic British brands - Jaguar and Land Rover (JLR) from the
US-based Ford Motors for US$ 2.3 billion. Forming a part of the purchase consideration
were JLR's manufacturing plants, two advanced design centres in the UK, national sales
companies spanning across the world, and also licenses of all necessary intellectual
property rights.
There was widespread scepticism in market over an Indian company owning the luxury brands.
According to industry analysts, some of the issues that could trouble Tata Motors were
economic slowdown in European and American markets, funding risks, currency risks etc.
Market conditions were extremely tough, especially in the key US market. Tatas needed to
invest a lot in brand building to make JLR profitable. Onset of recession not only made
investment look mistimed, but also started wiping out the JLR market.
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INTRODUCTION TO AUTOMOBILE INDUSTRY
Market area in India has been witnessing several changes in charter and Complexity
since the last few years. These changes include a higher reach of mass media,
particularly due to an increased penetration of satellite Channels, availability of a
greater assortment of products and services. Higher level of consumer spending on
items other than basic necessities, more discerning choice behaviour exhibited by
consumers, and a clear Indication of consumer preference for better value in products
and services.
The passenger vehicle segment in the automobile industry plays a vital role in India the
present day market is such that the passenger vehicle is affordable by Middle class
people in urban and semi-urban areas; it is also more convenient for travelling short and
long distance. Over the years the sales figured of the four wheelers has increased to a
very large extent. The sale of the four-wheeler in 1950 was nearly 300 units whereas
now the sales have shot up to millions.
The Indian automobile industry is now striding inroads into the rural middle class after
its inroads into the urban markets and rural rich. It is trying to bring in varying products
to suit requirements of different class segments of customers.
Vehicles that can be considered automobiles were demonstrated as early as 1769 and
1885 marked the introduction of gasoline powered internal combustion engines.
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HISTORY OF AUTOMOBILE INDUSTRY
The history of the automobile industry in India actually began about 4,000 years ago
when the first wheel was used for transportation. In the early 15th century, the
Portuguese arrived in China and the interaction of the two cultures led to a variety of
new technologies, including the creation of a wheel that turned under its own power. By
the 1600s, small steam-powered engine models were developed, but it was another
century before a full-sized engine-powered automobile was created.
The dream a carriage that moved on its own was realized only in the 18th century when
the first car rolled on the streets. Steam, petroleum gas, electricity and petrol started to
be used in these cars.
India's transport network is developing at a fast pace and the automobile industry is
growing too. The automobile industry also provides employment to a large section of
the population. Thus the role of automobile industry cannot be overlooked in Indian
Economy. All kinds of vehicles are produced by the automobile industry. It includes the
manufacture of trucks, buses, passenger cars, defence vehicles, two-wheelers, etc. The
industry can be broadly divided into the car manufacturing, two-wheeler manufacturing
and heavy vehicle-manufacturing units.
The major car manufacturers in India are Hindustan Motors, Escorts Ltd, Maruti Udyog,
Fiat India Private Ltd., Ford India Ltd., General Motors India Pvt. Ltd., Honda Siel Cars
India Ltd., Hyundai Motors India Ltd., Skoda India Private Ltd., Toyota Kirloskar
Motor Ltd. Sawarj buses many more.
JAMSHETJI TATA (1887–1904) RATAN TATA
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Chairman of Tata Sons and major Group companies, including Tata Motors, Tata Steel,
Tata Consultancy Services, Tata Power, Tata Tea, Tata Chemicals, Indian Hotels, Tata
Tele-services and Tata Auto Company.
VISION STATEMENT
“To be the Most Sought after Organization for Enabling
Tata Group Companies Achieve Industry Leadership”
VALUES
“Credibility, Integrity, Excellence & Continuous Learning and Sharing”
The Tata Group is one of India's largest and most respected business conglomerates,
with revenues in 2005-06 of $21.9 billion (Rs 967,229 million), the equivalent of about
2.8 per cent of the country's GDP, and a market capitalisation of $62.2 billion as on July
12, 2007. Tata companies together employ some 2, 46, 000 people. The Group's 28
publicly listed enterprises — among them stand out names such as Tata Steel, Tata
Consultancy Services, Tata Motors and Tata Tea — have a combined market
capitalisation that is the highest among Indian business houses in the private sector, and
a shareholder base of over 2 million. The Tata Group has operations in more than 54
countries across six continents, and its companies export products and services to 120
nations. Products of TATA Motor Heavy Vehicles.
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TATA MOTORS IN INDIA
Tata Motors Logo.svg
Type - Public
Traded as BSE: 500570 (BSE SENSEX Constituent)
NSE: TATAMOTORS
NYSE: TTM
Industry Automotive
Founded 1945
Founder Jamsetji Tata
Headquarters Mumbai, Maharashtra, India[1]
Area served Worldwide
Key people Cyrus Pallonji Mistry (Chairman)
Products Automobiles
Commercial vehicles
Coaches
Buses
Construction equipment
Military vehicles
Automotive parts
Services Automotive design,
Engineering and outsourcing services
Vehicle leasing
Vehicle service
Revenue Increase US$ 38.6 billion (FY 2013-14) [2]
Operating Inc. Increase US$ 3.86 billion (2014) [2]
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Profit Increase US$ 2.29 billion (2014) [2]
Total assets Increase US$ 36.05 billion (2014) [2]
Total equity Increase se US$ 8.91 billion (2014) [2]
No of employees 66,593 (2014) [2]
Parent Tata Group
Divisions Tata Motors Cars
Subsidiaries Jaguar Land Rover
Tata Daewoo
Tata Hispano
Slogan More Dreams Per Car
Website www.tatamotors.com
Profile:
Tata Motors, the flagship company of Tata group. Established in 1945 Tata Motors are
India's largest automobile company, with revenues of Rs/- 24,000 cores (USD 5.5
billion) in 2005-06. The company began manufacturing commercial vehicles in 1954
with a 15-year collaboration agreement with Daimler Benz of Germany.
It is the leader by far in commercial vehicles in each segment, and the second-largest in
the passenger vehicles market with winning products in the compact, midsize and utility
vehicle segments. The company is the world's fifth-largest medium and heavy
commercial vehicle manufacturer.
Tata Motors Limited, formerly known as TELCO (TATA Engineering and Locomotive
Company), is India’s largest passenger automobile and commercial vehicle
manufacturing company. It is also the world's 5th largest commercial vehicle
manufacturer. It is part of the Tata group. Tata Motors is widely credited for putting
India on the automotive map by designing and developing its own range of cars. Tata
Motors date back to 1945 when they started making Trains. Tata Motors was first listed
on the NYSE in2004. Tata Motors had created the wealth Rs 320bn during 2001-2006
and stood among top 10 wealth creators in India.. In 2004 it also bought Daewoo's truck
manufacturing unit in South Korea. In March 2005, it acquired a 21% stake in Hispano
caracara SA, giving it controlling rights in the company. Tata Motors and the Fiat group
have signed a new memorandum of understanding (MoU) to establish a 50:50 Joint
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venture to manufacture passenger vehicles, engines and transmission systems for both
domestic and export markets Tata Motors is a company of the Tata and Sons Group,
founded by Jamshetgi Tata. It is currently headed by Ratan Tata. The company has the
workforce of 22000 employees working in its three plants and other regional and zonal
offices across the country.
Tata Motors' range of passenger cars is still not comprehensive by international
standards. In commercial vehicles, Tata Motors commands an imposing 65% market
share in the domestic heavy commercial market. The company is trying to modernize its
range of commercial vehicles. Tata Motors hived off its vehicle finance business into a
separate subsidiary, TML Financial Services (TMLFS), in September 2006. The
company plans to build a car that will cost just under Rs 1, 00,000 considering that 2
wheelers in India cost Rs 50,000/-.
Indigenously developed mini-truck. Tata motors manufacturing units are located at
Jamshedpur, Lucknow and Pimpri-Chinchwad (Pune). The Pune plant manufactures the
passenger cars.
Area of Business:
Tata Motors' product range covers passenger cars, multi-utility vehicles as well as light,
medium and heavy commercial vehicles for goods and passenger transport. Seven out of
10 medium and heavy commercial vehicles in India bear the trusted Tata mark. The
company developed India's first indigenously developed light commercial vehicle,
India's first sports utility vehicle and, in 1998, the Tata Indica — India's first
indigenously manufactured passenger car. Within two years of launch, Tata Indica
became India's largest selling car in its segment.
Research and Development
Tata Motors invests approximately up to 2 per cent of its annual turnover on research
and development, with an emphasis on new product / aggregates development and
technology up gradation. Its Engineering Research Centre in Pune employs over 1,400
scientists and engineers and has India's only certified crash-test facility and hemi-
anechoic chamber for testing of noise and vibration.The company also draws on the
resources of leading international design and styling houses like the Institute of
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Development in Automotive Engineering, SPA, Italy, and Stile Bertoni, Italy. The
company has also been implementing several environmentally sensitive technologies in
Manufacturing processes and uses some of the world's most advanced equipment for
emission checking and control.
Environmental Responsibility
Tata Motors has led the Indian automobile industry's anti-pollution efforts through a
series of initiatives in effluent and emission control. The company introduced emission
control engines in its vehicles in India before the norm was made statutory. All its
products meet required emission standards in the relevant geographies. Modern effluent
treatment facilities, soil and water conservation programmers and tree plantation drives
at its plant locations contribute to the protection of the environment and the creation of
green belts.
Global Competition
Tata Motors have some distinct advantages in comparison to other MNC competitors.
There is definite cost advantage as labour cost is 8-9 per cent of sales as against 30-35
per cent of sales in developed economies. Tata motors have extensive backward and
forward linkages and it is strongly interwoven with machine tools and metals sectors.
India is an excellent source for IT based engineering solution for products & process
Integration. There are strong supporting industries
Exports
Tata Motors' vehicles are exported primarily to Europe, Africa, the Middle East, South
and South East Asia and Australia. The company also has assembly operations in
Malaysia, Bangladesh, Ukraine, Kenya and Russia. Over the years, the company has
received more than 50 awards from the government of India's Engineering Export
Promotion Council, for its export initiatives. While currently about 14 per cent (as on
March 31, 2005) of its revenues are from its international business, the company intends
to increase its international business through organic and inorganic growth routes.
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Awards
Tata Motors has been chosen as India's Most Trusted Brand in cars in a Readers Digest-
AC Nielsen consumer survey in 2006.
Tata Motors' mini-truck, Ace, which has created an all-new category in the commercial
vehicles market, received the BBC-Top Gear' Design of the Year 2006. The company's
Star bus low-floor city bus and the Novus heavy truck were adjudged second and third
respectively.
For the second consecutive year, Auto Monitor as the ‘Commercial Vehicle
Manufacturer of the Year’ rated Tata Motors for 2006.
The Commercial Vehicle Business Unit won the CII-Exim Bank Award for 2005 for
Business Excellence, for being a role model of excellence in management. The award
particularly recognizes excellence in the management of quality as a fundamental
process. The two divisions of the company also won the Tata Group's JRD QV Awards
for Business Excellence in 2005. The Jamshedpur plant and the car plant at Pune
received the Union Ministry of Power's National Energy Conservation Award, which
recognize significant initiatives to reduce energy intensity and improve energy
efficiency.
The Jamshedpur plant won the award for the fourth year in a row. The Commercial
Vehicle Business Unit and the Passenger Car Business Unit also received the CII's
National Award for excellence in energy management. The Foundry Division at the
Pune plant received the Gargi Huttenes Albertus Green Foundry of the Year Award.
Manufacturing
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenization. This focus has driven the Company to set up world-class
manufacturing units with state-of-the-art technology. Every stage of product evolution-
design, development, manufacturing, assembly and quality control, is carried out
meticulously. Our manufacturing plants are situated at Jamshedpur in the East, Pune in
the West and Lucknow in the North.
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Products
Passenger Cars, Indica, Indigo
Utility Vehicles- Safari, Sumo
Trucks- NOVUS and others
Bus- Starbus, Globus and others
Defence Vehicles
Research Tata Cars in India
The India Cars. They understand market and Indian roads better here. Have been
successful in creating right brand equity and share. Offering very practical and
economic cars are their prime motive and they are doing well with it. However Tata
cars cannot be considered as perfect by any means. They have expertise in diesel
technology and lack in petrol. Highly successful Indica's latest petrol version Xeta is
Tata's biggest hope.
Products
Passenger cars and utility vehicles
• Tata Sierra
• Tata nano
• Tata Sumo
• Tata Safari
• Tata Indica
• Tata Indigo
• Tata Indigo Marina
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JAGUAR CARS
Type - Brand of Jaguar Land Rover
Industry - Automotive
Fate 1966: Merged with British Motor Corporation
1968: Merged with British Leyland
1984: Demerged
1989: Taken over by Ford
2008: Sold to Tata Motors
Founded - 1922
Founder - Sir William Lyons and William Walmsley
Headquarters- Whitley, Coventry, United Kingdom
Key people Cyrus P. Mistry (Chairman)
Dr Ralf Speth (CEO)
Ian Callum (Jaguar Design Director)
Phil Popham (Jaguar Land Rover Group Marketing Director)
Products - Luxury Cars
Owner - Tata Motors
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No of employees - 10,000
Parent - Jaguar Land Rover
Website www.jaguar.com
Jaguar Cars (/ˈdʒæɡjuː.ər/ jag-ew-ər) is a brand of Jaguar Land Rover, a British
multinational car manufacturer headquartered in Whitley, Coventry, England, owned by
the Indian company Tata Motors since 2008.
Jaguar was founded as the Swallow Sidecar Company in 1922, originally making
motorcycle sidecars before developing passenger cars. The name was changed to
"Jaguar" after World War II to avoid the unfavourable connotations of the SS initials. A
merger with the British Motor Corporation followed in 1966, the resulting enlarged
company now being renamed as British Motor Holdings (BMH), which in 1968 merged
with Leyland Motor Corporation and became British Leyland, itself to be nationalised
in 1975.
Jaguar was de-merged from British Leyland and was listed on the London Stock
Exchange in 1984, becoming a constituent of the FTSE 100 Index until it was acquired
by Ford in 1990. Jaguar has, in recent years, manufactured cars for the British Prime
Minister, the most recent delivery being an XJ in May 2010. The company also holds
royal warrants from Queen Elizabeth II and Prince Charles.
Jaguar cars today are designed in Jaguar Land Rover's engineering centres at the
Whitley plant in Coventry and at their Gaydon site in Warwickshire, and are
manufactured in Jaguar's Castle Bromwich assembly plant in Birmingham with some
manufacturing expected to take place in the Solihull plant.
In September 2013 Jaguar Land Rover announced plans to open a 100 million GBP
(160 million USD) research and development centre in the University of Warwick,
Coventry to create a new generation of vehicle technologies. The carmaker said around
1,000 academics and engineers would work there and that construction would start in
2014.
When SirWilliam Lyons left the company Geoffrey Robinson took over. He solved
many problems regarding poor reliability and created many new models. In 1975 he
created the XJ-S to substitute the obsolete E-Type.
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In 1986, the last model built under BL was launched: the XJ40. The gestation period
For this model was very long, and this was due mostly to strikes and problems with the
Syndicates. In this period all of BL faced quality problems with its cars and had many
Financial issues. In 1989 Jaguar was sold to Ford.
FORD ACQUISITION
Originally, Ford bought Jaguar to enter the luxury car market, which was expanding
heavily at the time. Also, it wanted to expand even further in the European market,
being already the largest US manufacturer in Europe.
The years under Ford were not very good. Ford was tempted to use Jaguar’s high profile
image to challenge Mercedes and BMW, and thus started launching some lower priced
cars. An example is the Jaguar X-Type, which was based on the Mondeo. It had front
wheel drive, a wide choice of diesel engines and a station wagon version. The results
were very bad because these features ruined Jaguar’s image.
WHY WASN’T THE ACQUISITION SUCCESSFUL?
One of the reasons for the problems at Jaguar may have been a decision to reduce costs
By sharing parts across brands, so that Jaguars were built using platforms on which
other Ford vehicles were being built.2 the practice is common in the auto industry, but
in this case it may have hurt Jaguar’s image and quality. For example, they launched the
new X-Type basing it on the Mondeo, and this disappointed most of the costumers. That
car in particular was selling at $299 leases, and traditional Jaguar owners were upset
because also their maid could afford one.
Jaguar was in a complete identity crisis. To cut costs further and further Ford started
putting even more of its parts in the cars, and the results were horrible. The company
was selling $60000 cars with Ford interiors that could have been a lot better by just
spending $250 more on them. Management was stubbornly convinced that Jaguar’s
problems were not in the cars. However, they completely lost track of what the
company should be, and this was further shown by the fact that they were considering
the launch of an SUV.
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Another reason for Jaguar’s fall from grace was styling. Ford had been criticized for
letting the look of Jaguars age. The best example was Jaguar’s flagship model, the XJ,
Which had kept its classic look from the ‘50s and ‘60s? That look might have appealed
to Jaguar aficionados, but not necessarily to a broader group of consumers. Jaguar
didn’t keep up with the times, and research showed that Jaguar buyers were older than
the average luxury car owner. Jaguar suffered from an aging audience.
In the meanwhile, the lower-end Jaguar models had faced tough competition from Audi,
BMW and Cadillac. Jaguar has not always equalled the competition in terms of looks,
Quality and performance. Mercedes, Jaguar’s sworn enemy, was selling six times as
many cars. Competition was so fierce that companies often demeaned each other in
advertising.
Jaguar was viewed as the retiring director’s car, which isn’t a bad thing; however the
market wasn’t very large. Also, Jaguar was sub-par with its competitors in customer
service and satisfaction. The Germans were very strong under this aspect, having a lot
of specialized units.
WHY IS FORD SELLING?
Reports said losses at Jaguar stood at USD 715 million in 2006.
Jaguar was not 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.
Ford was combining both the brands since the products and manufacturing of
vehicles for Land Rover and Jaguar was so intertwined.
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PRE-MERGER
The acquisition would help the company acquire a global footprint and enter the
high-end premier segment.
Tata to get access to advance design studios and technology as part of the deal.
Competitive advantage as Corus was the main supplier of automotive high grade
steel to JLR and other automobile industry in US and Europe.
Tata motors will diversify its present dependence on Indian markets (90%) and will
to get footprints in South East Asia, US, Western Europe.
New product development and brand building experience enhancing Tata Motors
in-house R&D and designing capabilities
Better utilization of cash in the Tata Motors balance sheet.
Rising appetite for luxury automobile in growing markets like India and China
Potential for revenue synergy giving TATA greater international distribution,
broader product range and better customer service skills
TATA’S ACQUISITION
It was in this environment of crisis that Tata made a $2.3 billion offer to Ford to buy
Jaguar and Land Rover in 2008. This was an important turning point also because it
showed how quickly things change in the modern world: nobody expected an Indian
company to become the owner of two of the most important car brands in the world.
Ford sold Tata because of its decision to focus on its core business, which based on their
Forecasts would’ve had to be turned around in two years time. Also, JLR had always
been a dog, in the sense that it never provided a profit to the parent company.
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WHY TATA BUYING?
Tata wanted to make a global impact and it thinks that buying these brands at a lower
rate now, will give better value later on.
This acquisition also eases the entry of Tata in European market which it has been
eyeing for long.
Reduce the company dependence on the Indian market which accounted for 90% of
its sales
Opportunity to spread its business across different customer segment
At the price staring from 63 lakh and going up to 93 lakh, it seems Tata has just got
the right place to compete with the current market leaders in luxury brands – BMW,
Audi, Mercedes
Publicity on an international scale
Access to large distribution network
JLR had many new models lined up for next 3 years, so no much work just profits
Strong R & D culture and facilities
WHY ACQUIRE JAGUAR
Long term strategic commitment to automotive sector
Opportunity to participate in two fast growing auto segments (premium and small
cars) and to build a comprehensive product portfolio with a global footprint
immediately
Increased business diversity across markets and product segments
Unique opportunity to move into premium segment with access to world class iconic
brands.
Jaguar offers a range of “Performance/Luxury” vehicles to broaden the brand
portfolio.
Sharing of best practices between Jaguar, Land Rover and Tata Motors in the future
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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
centres 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 company’s
dependence on the Indian market, which accounted for 90% of its sales. 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.
Tata Motors raised $3 billion (about Rs 12,000 core) through bridge loans for 15
months from a clutch of banks, including JP Morgan, Citigroup, and State Bank of
India. Tata came under cash crisis because of the Corus deal and the huge investments
in the TATA Nano project which itself was surrounded in a lot of uncertainties. The
credit rating companies also took a negative outlook toward this deal because of the
huge debt requirement to complete the deal.
Ford Motors Company (Ford) is a leading automaker and the third largest multinational
corporation in the automobile industry. The company acquired Jaguar from British
Leyland Limited in 1989 for US$ 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 (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
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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.
THE DEAL PROCESS
12/06/2007- Announcement from Ford that it plans to sell Jaguar & Land Rover
08/2007 - Major bidders were identified Tata Motors, M&M, Ceribrus capital
Management, TPG Capital, Apollo Management
India’s Tata Motors and M&M arrived as top bidders ($ 2.05b & $ 1.9b)
03/01/2008– Ford announces Tata as the preferred bidder
26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata
Motors.($ 2.3 bn)
02/06/2008– The acquisition was complete
WHY DID TATA GO 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 (Refer to Exhibit Me 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 endeavour 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 high-end premier segment of
the global automobile market. After the acquisition, Tata Motors would own the worlds
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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)?
•Provides services like supplier programs, consulting services and global outsourcing.•Customers include Chrysler, Ford, GM etc.
•Provides engineering design, manufacturing solutions and sourcing services.
•Major customer include Chrysler, Ford , GM etc.
•Leader in the automative grade steel.
•16% of revenue fron auto steel division.
•TAMO's flagship ancillary biz.
•Customers inc. Ford, Daimler, FIAT etc.
TACOTATA
Corus
INCATTCS
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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.
IS DEAL REALLY WORTH IT?
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.
Worldwide car sales are down 5% as compared to the previous year. The automobile
industry the world over is rationalizing production facilities, reducing costs wherever
possible, consolidating brands and dropping model lines and deferring R&D projects to
conserve funds.
The Chinese and Indian domestic markets for cars have been exceptions. While China
has witnessed a significant reduction in its automotive-related exports and supplies to
automobile companies, the Chinese domestic car market has grown by 7%. In India the
passenger car market has remained more or less flat compared to the previous year.
Since then, its fortunes have been unsure, as the slump in demand for automobiles has
depressed its revenues at the same time Tata has invested nearly $400 million in the
Nano launch and struggled to pay off the expensive $3 billion loans it racked up for the
Jaguar/Land Rover shopping bill. Within the space of a year, Tata Motors has gone
from being a developing-world success story to a cautionary tale of bad timing and
overly ambitious expansion plans.
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Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the
previous year. All through the fiscal year ended March 2009 the company bled money,
losing a record $517 million on $14.7 billion in revenues, just on its India operations.
Jaguar and Land Rover lost an additional $510 million in the 10 months Tata owned it
until March 2009.
In January 2009, Tata Motors announced that due to lack of funds it may be forced to
roll over a part of the US$ 3 billion bridge loan after having repaid around US$ 1
billion. The financial burden on Tata Motors was expected to increase further with the
pension liability of JLR coming up for evaluation in April 2009.
FOR WHAT TATA MOTORS PAID
3 modern plants in UK
2 advance design and engineering center
26 national sell companies
Intellectual property: free license to share technology with Ford
Support from ford motor credit: Ford motor credit will continue to support the sale
of Jaguar and Land rover for next 12 months
DISADVANTAGES BY NOT GOING FOR THIS ACQUISITION?
There was immense pressure from the shareholders, analysts’ community etc. to abort
the deal as they unanimously agreed that it was over priced and the balance sheet of
TATA was not in a position to absorb more loan (as discussed in the previous section).
Ford purchased JLR at $5 bn and sold at almost half the price to TATA after operating
it for losses for few years. As the market would have recovered from recession the
valuation would have increased since there would have been growth in the demand of
JLR thus creating more problems for TAMO. Tata would not have been able enter into
the premium segment (>10 lakhs) in India. TAMO would have lacked in robust
Designing capabilities. Above all, at that time no other major automobile brand was
available for acquisition with such designing and R&D capabilities.
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THE RATIONALE BEHIND THE ACQUISITION
There were numerous reasons why Tata Motors bought Jaguar Land Rover. In first
place, there was a strategic dimension to this move. The acquisition would’ve been able
to launch Tata globally, by giving it better technology and broadening its product range.
While Tata was very strong in India, it had problems growing outside because of the
very high entry barriers of the automotive market. By acquiring Jaguar and Land Rover,
Tata took control of two well-known and established brands, which could give it
easy access to international markets .
Tata wanted to also improve its technology since the international market had high
technological standards, and the technological know-how of Jaguar as well as Land
Rover was on par with them. In addition, Ford was willing to provide technology know-
how to Tata on these brands for a period of time. Ford committed to provide Jaguar and
Land Rover with vehicle components and access to engineering and technological
support, also after the sale.
The acquisition would also expand the company’s product line-up, which focused
primarily on low end cars. This way Tata could profit from a broader line up of
consumers. Furthermore, the acquisition could also be a cost-effective way of gaining
competitive advantages such as technology, brand names valued in the target market
and logistical and distribution advantages, while simultaneously eliminating a local
competitor. Finally, the acquisition of JLR could enable the company to enhance its
financial position in the market. In fact, speculations that Tata was the preferred bidder
for Jaguar and Land Rover led to a raise the price of its shares. Recent financial results
show that Tata has profited from the acquisition of Jaguar and Land Rover. In fact, JLR
posted record sales of $1.5 billion at the end of the 2012-2013 financial years (the
financial year for JLR starts in April and ends in March).
23
BENEFITS
Tata wanted to make a global impact and it thinks that buying these brands at a lower
rate now, will give better value later on.
This acquisition also eases the entry of Tata in European market which it has been
eyeing for long. A previous JV with FIAT took place; this would further help them
penetrate EU market.
Reduce the company dependence on the Indian market which accounted for 90% of
its sales
Increase sales in emerging markets
Reduce dependence on mature markets
Opportunity to spread its business across different customer segment
At the price staring from 63 lakh and going up to 93 lakh, it seems Tata has just got
the right place to compete with the current market leaders – BMW, Audi, Mercedes
Publicity on an international scale
Access to large distribution network
JLR had many new models lined up for next 3 years, so no much work just profits
Strong R & D culture and facilities
Component sourcing, engineering and design benefits.
GAINS FOR TATA
Mergers and acquisitions seek to enhance as well as develop long-term profitability, by
expanding the company’s operations. In the JLR Tata case, both companies managed to
obtain important benefits. On one side, Tata gained access to the global market. This
would allow it to diversify its operations also outside of India, and help it get out of the
recession it had entered since the economic slowdown.
On the other side, Jaguar managed to obtain important investments that would help it
regain its ancient splendor. Tata invested heavily on research and innovation, and gave
Jaguar a well-defined image again. Furthermore, with Jaguar’s technology, Tata
benefitted of the ability to launch products at lower costs than competitors, also thanks
to synergies with other businesses. In addition, Tata would reduce the overdependence
on the Indian market which is estimated to have accounted for about 90 percent of its
sales.
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Also, the acquisition of Jaguar would enable Tata to gain complementary capabilities.
The acquisition would broaden the level of diversification of the business portfolio both
geographically and product wise. Furthermore, Tata would benefit from the fact that it
would enjoy low cost of both design and the engineering. In fact, Tata Motors would
move its design centers directly at Jaguars. It would also gain new distribution channels
without having to merge TAMO with JLR.
With the deal Tata also acquired three UK plants. Also, centers for advanced design and
engineering were now at Tata’s disposal. Apart from this, the move made it possible for
Tata to gain access to 26 sales companies together with their IP rights. Furthermore,
Tata would acquire $1.1 billion in capital allowances for taxes.
Critical Success Factors for Effectively Managing Land Rover
and Jaguar
1. To be able to find a source of financing for the 1-2 Billion Dollar acquisition of Land
Rover and Jaguar.
2. To be able to integrate Land Rover and Jaguar to Tata’s Global Strategy, debt
liabilities of the mentioned companies must be managed.
3. Acquiring Jaguar involves dealing with its union, Tata must be able to handle them
and manage these future employees productively.
4. Tata must be able to leverage on the Existing distribution network as well as manage
foreign competition
5. Corporate culture must be addressed to be able to execute this acquisition as part of
the company’s global strategy.
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REASONS FOR JAGUAR’S SUCCESS SINCE 2008
Jaguar Land Rover Results under IFRS for the period ended 31 March 2012
After Tata’s acquisition, JLR returned to be a profitable company. Data from 2012
released by JLR shows that in the period between the 1st of April 2011 and 31 of March
2012, profits increased of £445 million. The Telegraph recently published an article that
stated that after tax profits for 2013 were of £1.5 billion, another record. A major factor
for these results is the growth experienced in China, where sales increased by more than
80%. Jaguar increased sales by 5% worldwide, in most part thanks to the launch of the
2.2L XF. In reality, the increase in profits of the group is more the merit of Land Rover,
which increased sales by 33% thanks to their new Evoque SUV. To keep up with
demand, the group is constructing a new engine plant in Wolverhampton. Furthermore,
it’s expanding its existing ones and is building new facilities in China to deal with
demand in the local market.
According to Dr. Romano, Tata was successful for a number of reasons. In first place,
While Jaguar was just an appendix of a much larger organization under Ford, the new
Owner decided to bring it back as a central and independent brand. Earlier, Ford ruined
Jaguar’s image by trying to “massify” luxury, removing its exclusivity. For example, it
Took its own parts and put them in Jaguar cars, something that was viewed by
traditional Owners as unacceptable. This type of behaviour may be justifiable in
ventures between Different car companies, but not with Jaguar.
Another thing that Tata did correctly was to invest in the right areas. Numerous new
engineers were hired, and the objective was to improve the research and development
areas. The new focal area of business was now innovation and renovation, not just cost
control another important thing to consider is the fact that the company was left
completely independent. This is a general tendency of Tata when it acquires new
companies. Of course, India was a colony of Great Britain just decades ago, and
probably strong interferences wouldn’t have gotten a lot of approval at JLR. Dr.
Romano mentioned that he didn’t see anyone from outside Jaguar come and reorganize
things. These sorts of behaviours, for example with the Japanese, are usually a lot
different. Mr. Tata, the owner and founder of Tata, now retired, has always been
interested in how the company was being run, more out of passion than anything, but
never imposed his way of doing things. For instance, he was very involved in the
26
Development of the new F-Type, by giving his feedback. He did change top
management to some extent. In particular, he brought in a lot of Germans in the top
management, who are very prepared in the luxury car market. Also Dott. Romano
himself is an example of management change in the company, having been promoted
just recently to his current position.
JAGUAR LAND ROVER BENEFITS FROM WORLDWIDE
EXPANSION.
The company has a worldwide network of dealers and Land Rover Experience centres,
where the full range of Land Rover vehicles can be put through their paces.
With Jaguar Land Rover experiencing global sales growth, it is increasingly important
to expand its global presence. Production of the Freelander 2 and Jaguar XF saloon
commenced at a facility in Pune, India, overseen by experienced manufacturing and
quality managers who have relocated to India from the UK.
In addition to the Pune plant, Jaguar Land Rover has local assembly facilities in Kenya,
Malaysia, Pakistan and Turkey as well as testing and development centres in Dubai,
Minnesota in the United States and at the Nurburgring in Germany.
The business has formed partnerships across the globe, including a Joint Venture with
Chery Automobile in China where we will manufacture vehicles for Chinese
customers.
We have also recently signed a letter of intent paving the way for an automotive
partnership in Saudi Arabia. Together with Saudi Arabia’s National Industrial Clusters
Development Program (NICDP) we have begun a detailed feasibility study to determine
the viability of setting up an automotive facility.
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PROBLEMS IN THE DOMESTIC MARKET
The profits for the first quarter for the year 2008-09 were at 3.26 billion
Q3 the sales of passenger vehicles went down to 41,287 units a drop of 14.14%
Tata Motors cut production across different categories.
Drop in share prices
Failure of rights issue
Huge debt burden
Sales volume decreased by 35.2%
Lack of consumer loans
Issue of timing
Operational freedom slows pace of change
Depressed state of the global premium car market
Jaguar/Land Rover lost 306 million pounds ($504 million) for the fiscal year ending March
2009
Tata Motors reported a net loss of Rs3.29bn ($67 million) for the quarter to end-June
Tata’s core commercial vehicles market in India is also suffering from slower sales
Extremely high manufacturing costs in Britain
Eliminated more than 2,200 jobs.
MAJOR CHALLENGES
Management at Tata and JLR had a number of challenges to address. The main one was
Probably the economic slowdown in both European and American markets. Another
problem was given by the fact that Tata Motors had limited resources. Also, currency
risks could potentially affect the acquisition of JLR since it was a cross-border
acquisition.
Tata needed a lot of funding to make Jaguar profitable again. Many observers said that
Tata’s balance sheet could not handle new debt. Also, the economic situation was
particularly bad for Jaguar, because in times of economic crisis people invest very little
in luxury goods.
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Furthermore, it was feared that Jaguar’s acquisition would negatively affect Tata since it
would’ve increased the volatility of its earnings. Also, Tata was expected to incur a very
large expenditure since it had planned to invest an extra $1 billion in JLR. Furthermore,
Tata was expected to invest huge capital while developing the Nano car. This together
with the market conditions that prevailed during the time of acquisition would translate
into great losses of profit. From a global standpoint, the sales of cars had dropped 5%
compared to the preceding year.
From a general point of view, Tata Motors was facing challenges from the market due
to the fact that new products were being introduced. At the same time, competitors
could not be underestimated since BMW, Lexus, Infinity and Mercedes were very
strong. To worsen things, there were problems regarding brand image and positioning,
inherited by
Ford, as well as receding sales, which meant that the JLR acquisition would bring more
strain to Tata. During times of economic crisis, investments have a tendency to become
more volatile and as such they can easily become more costly than anticipated.
Another problem was Tata’s inexperience at managing a loss making company, as well
as managing a luxury car maker. By keeping the same management at JLR, the
turnaround might be easier.
A challenge that a cross border acquisition such as this one usually carries is the one
brought by cultural differences. Communication across borders over long distances is
another issue of concern, since acquiring JLR did not mean that their operations would
Be shifted to India. Instead, Tata kept operations quite separate and JLR remained
relatively independent.
A point in favour of Tata was its strong management, which was already used at
acquiring other companies. It also had expertise in a growing market such the Indian
one and this could be useful to expand in countries like China. Furthermore, the
experience gained in allaying market apprehensions during the acquisition of Corus
could come in handy.
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POST MERGER
Following Cost Rationalization initiatives were taken to improve cash flows:
Single shifts and down time at all three UK assembly plants.
Supplier payment terms extended from 45 to 60 days in line with industry standard.
Receivables reduced by £133 million from 38 to 27 days.
Inventory reduced by £217m between June 2008 and March 2009 from 70 to 50
days.
Labor actions –
• Voluntary retirement to 600 employees.
• Agency staff reduced by 800.
• Offered leaves to 300 workers of Bromwich and solihull plant.
• Additional 450 job cuts including 300 managers.
Agreement with Unions to implement pay freeze and longer working hours
(equivalent to approximately 20% reduction in labor costs.)
Engineering and capital spending efficiencies.
Fixed marketing and selling costs reduced in line with sales volume.
Reduction in all other non-personnel related overhead costs.
JLR sale to Tata Motors was greeted with approval but regretted by the Union.
Tata motors value plunged and the stock hit rock bottom.
Tata motors posted its first annual loss in at least seven years.
Then, in late 2009 the turnaround started. Sales improved upon introduction of
newer, more fuel-efficient and contemporary models.
Debt-equity ratio improved to 1.6 times from 4.5 times.
Huge revenue from BRICS nations
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SWOT ANALYSIS
STRENGTHS:
Tata’s strong management capability
Strong monetary base to invest
WEAKNESSES:
Jaguar’s declining sales record
Inexperience of handling such luxury brands.
OPPORTUNITIES;
Support from ford in terms of technology,engine,IT,accounting
Adding up of luxury brands in the product line
Access to European market
THREATS
Market is volatile and driven by new products
Strong presence of competitors like Mercedes, BMW, Lexus and Infinity
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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:
• Tata’s 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 cos like Corus
• Acquisitions like JLR
will help TAMO in competing with brands like Merc. 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.
• JLR’s 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
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CONCLUSION
Today automobile industry is booming. Especially TATA gets enough number of
customer and company earning better profit from last 5 years. In some instance their
product is not moving fast, however they modified their product model and trying to
have better profit. By glance one can conclude TATA Motors enjoys the good position
in the automobile market.
The merger seemed poorly timed. Demand for luxury cars collapsed as a result of
financial crisis. Started making profits in 2010 up to 41 %.Now an example of a
successful merger Entered CHINA in march 2012 with a joint venture with Chery
Automobiles
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BIBLIOGRAPHY
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acquisition-of-the-jaguar- land-rover-brands/articleshow/2902205.cms
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