tata and jlr

7/31/2019 Tata and Jlr.

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TATA -JAGUAR -LAND ROVERDEAL


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Equity and Debt The Concepts


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The TATAs

Tata is an increasingly powerful multinational conglomerate with a

market value of more than $70bn (35bn) and almost 290,000 peoplein its workforce in 80 countries. During the financial year March 2008,its revenues of about 18bn were equivalent to some 3.2% of India'sgross domestic product.

The Mumbai-based group's subsidiaries are major corporations intheir own right, active in industries ranging from IT services to powergeneration, to tea production, to steel. In the UK it already owns TetleyTea and steelmaker Corus.


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The JaGuar &&& The LandRover

Its first model was the 4x4 vehicle that bore the

company's name, while Land Rover has also madethe Range Rover, the Freelander and the Discovery.

Jaguar -- the sleek car which dates back to1935 -- has been less profitable for Ford sinceit was bought in 1989. Its vehicles are made at three plants across central and

northwest England, while famous models have included the E-type and thelong-running XJ series.

Britain enjoys a largely successful car-making industry thanks to foreigninvestment. Japanese car giants Nissan, Toyota and Honda each run largeplants in the country.

German manufacturer BMW is meanwhile enjoying successful production ofthe Mini in Cowley, central England. Lastyear, however, French car groupPeugeot shut its plant in Coventry -- the same region that suffered after MG

Rover went bankrupt. 2005.


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The JaGuar &&& The LandRover

........ By 1927, car companies progressed to building special bodied cars,

which in 1931 resulted in the launch of the legendary SS1, a car which set thestage for the first true Jaguar. Remember the DIE ANOTHER DAY MOVIE.. As the range improved and expanded, it needed a name to reflect itsspeed, power and sleekness and in 1935 the Jaguar name was born.

........ Jaguar subsequently introduced its new XK120 at the 1948 Motor Show,

with an engine output of 160 BHP.......The Mark VII saloon was unveiled at the 1950 Motor Show and once againLyons 'stole the show'.. In 1955, the company invested one million pound on designing anddeveloping the Jaguar 2.4 to fill the gap........ The E-type was announced in 1961.

....... Some 70,000 Jaguar E-types were built over the next 13 years, witharound 60% being shipped to theUnited States.

. In 1968, the XJ6arrived.


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IMPORTANT FACTSTatas - the top choice for buying the US auto giant Ford's iconic British brands

Jaguar and Land Rover

The firm demolished the competition from rival Indian firm Mahindra and Mahindra

"When a private equity firm buys a company, the cost of buying it often goes ontothe companies books. If anything then goes wrong how do you refinance the

business?


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THE LEVERAGED BUYOUT SCENE

Tata Motors raised $3 billion (about Rs 12,000 crore)

through bridge loans for 15 months from a clutch ofbanks, including JP Morgan,Citigroup, and State Bank of India.

Company charted out plans to raised Rs 7,200crore, via Rights Issue. The proceeds of which

were be used to part-finance the JLR deal ofRs 9,228.75 cr..

The rights issue raised the equity capital of Tata Motors by

30-35 per cent by March 2009. The company also planned toraise $500-600 million through an issue of securitiesin the foreign markets.


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TM Planed To Raise Rs 4,000 Crores To Finance J-LR Deal

Auto major Tata Motors planned to raise nearly Rs 4,000 crore by selling securitiesin the domestic and international markets to part finance its imminent acquisition ofJaguar and Land Rover from Ford Motor.

The Tata Motors board approved the fund raising proposal. The funds were raisedto part-finance overall funding requirements to meet some of the strategic plans,

PlansPlans for expanding its position in the domestic and global markets in both thecommercial vehicle and passenger vehicle business. This was achieved byupgrading and enhancing the companys product portfolio, expandingmanufacturing facilities in India and strategic acquisitions and alliances in India andabroad.

While the organic growth plan required money over the next 3 to 4 years, theacquisition opportunities were to be financed up front. A source close to thedevelopment said Tata Motors would borrow from financial institutions to financethe Land Rover-Jaguar deal. The proceeds from the proposed share sale will beutilised to repay the loan, he added.


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Tata planned to inject $2 billion inJaguar, Land Rover

The Tatas - planned to fork out over $2 billion for the acquisition of these marquee

brands, which Ford had put on the block to shore up its balance sheet and reducedebt.

ET Reports

On February 25 : Tata Motors started the process of raising nearly $2.5 billion,mostly from the overseas markets, by giving the mandate to a battery of banks

including Citi and JP Morgan, StandardChartered, BNP Paribas and SBI.

Funds were raised against the balance sheet of Tata Motors. In other words, theborrowing would have an impact on the balance sheets of Jaguar and Land Rover.

Tata and Ford were expected to sign an MoU in the next few weeks. Ford had

announced that Tata Motors was the preferred bidder on January 3.


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Tata planned inject $2 billion inJaguar, Land Rover

Jaguar had shown Tata Motors its new model lines and found the Indian automobile

giant respectful of its plans. It was learnt that Ford managed to convince Unite, theunion representing Jaguar and Land Rover workers, on its plan to sell these twobrands in their entirety. Unite was earlier of the opinion that Ford should retainminority interest in these brands.

Tata Motors Managing Director Ravi Kant said :

That the company had taken bridge loans of $3 billion to fund the acquisitionof the two British luxury brands.

He said the company planned to replace the bridge loans with long-term debtsand equity contribution with funds to be raised through divestment in groupcompanies.


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TATA MOTORJLR Deal process

12/06/2007- Announcement from Ford that it plans to sell LandRover and Jaguar.

August 2007 - Major bidders are identified

Likely buyers: Tata Motors, M&M, Ceribrus capitalManagement, TPG Capital, Apollo Management

Indias 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 Roveroperations to Tata Motors.

02/06/2008 The acquisition is complete


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Why did Ford sell?

Reports said losses at Jaguar stood at USD 715million in 2006. Jaguar has been a dog i.e. it has notbeen able to provide any profit for ford because of thehigh manufacturing costs provided in the United

Kingdom. The strong boy Land Rover's profit, on the otherhand, was driven by the record sale of 2.26 lakhvehicles, an 18% YoY growth in 2007..

Bringing down production costs and turning aroundthe company successfully will be the challenge,analysts said. It was a test that Ford failed.

Ford is combining both the brands since the productsand manufacturing of vehicles for Land Rover and

Jaguar is so intertwined.


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What Tata had got???100% stake in Jaguar& land RoverBusiness

TAMO has acquired the business & initially they will be operated

independently of the partner.

3 Plants in UK These are well invested plants

2 advanced design& engineeringcenter

4-5000 engineers engaged in testing ,prototype design &powertrainEngineering , development & integration

26 National salescompany

Both existing national sales companies of jaguar/land rover & alsothose that are carved out of current Ford operation

Intellectual property

rights

This covers all key technologies to be transferred to JLR &

perpetual royalty free license on technologies shared with FordCapital Allowance A minimum guaranteed amount of $1.1 bn which will help

managing in Tax going forward

Support from FordMotor Credit

Ford Motor Credit will continue to support the sales of JLR foraround next 12 months

Pension Ford will contribute $ 600 mn of the Pension Fund


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Considering 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.

Over the years, Ford spent close to a total of $10 billion on the brand but failed to return aprofit. After incurring heavy losses for two consecutive years in 2006 and 2007, Ford took this

move.

Tata Motors has assured the employee union that both these factories will continue to operate

without any retrenchments after the takeover.

The process which started in 00 and reached new heights in 07 was said to have reached a

Zenith with this.

The Nanos plans were said to have been targeted towards the down markets but with this deal

going through this has been contradicted as Tata was equally bullish in the upmarkets.

Strategic VIEW POINTS


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Tata Motors - Jaguar - Land Rover DEAL COMPLETED

The biggest buy-out in the automobile space by an Indian company, Tata Motors,

was completed on June 3,2008 as it bought the ownership of luxury brands JaguarLand Rover, its manufacturing plants, design centers and worldwide sales networkfrom US car maker Ford Motor Company (FMC).

JLR was acquired on a cash free, debt-free basis. The purchase considerationincludes perpetual royalty-free licenses of all necessary intellectual property rights,

manufacturing plants, two advanced design centers in the UK, andworldwide network of National Sales Companies.


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Revenue synergiesA long-term possibility

(Nos) 2005 2006 2007

Jaguar 86,651 72,680 57,578

WesternEurope

46,789 41,367 33,024 57%

America 32,131 22,136 16,836 29%

Rest of Word 7,731 9,177 7,718 13%

Land Rover 170,156 174,940 202,609

WesternEurope

97,303 95,399 109,785 54%

America 51,634 53,638 57,092 28%

Rest of world 21,219 25,903 35,732 18%

Total 256,807 247,620 260,187

WesternEurope

144,092 136,766 142,809 55%

America 83,765 75,774 73,928 28%


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TAMO + JLR: Proforma Balance Sheet

(CY2007/FY08E)($ m) TAMO ($ m) JLR ($ m) conso

Net Tangible assets 2,510 2,246 4,756

Net IntangibleAssets

111 2,010 2,121

Vehicle Financingreceivables

2,935 2,935

Net Current

Assets

(56) (107) 537 We have assumed TAMO will put $700m

as operating cashin JLR on consolidation in JLR. Hence theNCA of TAMO &JLR do not add up

Cash & eqv 638 638

Trade

Investments

233 233

The cash equivalents includes shares ofTata Steel worth

$400m held at cost of $50mPension Assets 696 696

Other Assets 3 297 300

Total Assets 6,373 5,142 12,215


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TAMO + JLR: Proforma Balance Sheet

(CY2007/FY08E)($ m) TAMO ($

m)JLR ($m)

conso

Warranty Liabilities& Other provisions

489 2,667 3,156

Pension Liabilities 19 19

Shareholders'equity

2,314 2,456 2,314

Capital Asset 156

Since the acquisition cost ($2.3bn) is less thanNet assetvalue of JLR, there is capital asset instead ofgoodwill

Def Tax Liability 238 238

Minority Interest 30 30

Debt 3,302 6,302

Total Liabilities 6,373 5,142 12,215

We have assumed $3bn acquisition debt ofwhich $2.3b is used for paying Ford and thebalance as operating cash in JLR

TAMO JLR P f C h fl


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TAMO + JLR: Proforma Cash flow

(CY2008/FY2009E)Proforma Cashflow($ m)

TAMO JLR SPV Conso

Cash Profit 949 893 (225) 1,617

Chg in operatingWorking Capital

238 (256) (18)

Cashflow fromoperating activities

1,187 637 (225) 1,599

Increase in Vehicleloan receivables

(776) (776)

TAMO has a robust working capitalmanagement in its auto biz. Inventory andreceivable days at around 30 & 9 respectivelyand creditors at around 40 days

The vehicle loan receivables skew the reportedworking capital picture as they are shown aspart of working capital under Indian GAAP

Capex (813) (635) (1,447)

Trade investments (38) (38)

Chg in associates 16 16

Cashflow fromInvesting activities

(834) (635) (1,469)

We estimate operating cashflow from auto bizlargely covers TAMOs auto capex . Currently it

would be free cashflow neutral to modest +ve.

f h fl


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TAMO + JLR: Proforma Cash flow

(CY2008/FY2009E)Proforma

Cashflow ($ m)TAMO JLR SPV Conso

Chg in minorities (30) (30)

Chg in debt 949 3000 3949

Dividend (154) (154)

Cashflow fromfinancingactivities

766 3000 3766

Chg in cash 343 3 2,775 3,120

OperatingCashflow -

Capex

337 3 (225) 115 We estimate that JLR has a +ve pretaxcashflow


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Financial Impact & Valuation of acquisition

Total acquisition cost at $3bn assumed to be debt-funded on

TAMOs books We have not considered any asset sales in our calculations

Financial Impact: Leverage increases but coverage ratiosreasonable

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

Valuation: TAMO is trading inline/modest discount to globalpeers

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


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Post LBO Jaguar Land Rover by the TATAs

An ownership change for Jaguar and Land Rover, once emotive emblems of the

British auto industry, from Ford to Tata Motors was greeted withapproval but regret by a union here on Wednesday.

The Unite union welcomed the sale by Ford of the United States to Tata given anundertaking that jobs would be saved, but the union's joint leader Tony Woodleysaid that the switch was "a big disappointment."

Tata Motors later confirmed in New Delhi that it had bought the British luxury iconsfor 2.3 billion dollars in cash.

Unite general secretary Woodley said he was "pleased" Tata was buying the brandsand safeguarding about 16,000 jobs in Britain. Commenting on Ford's planned sale,

he said: "That is a big disappointment."Woodley added: "We would have much preferred Ford to keep the companies in thefamily, so to speak, especially with Land Rover being so profitable.


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Post LBO Jaguar Land Rover by the TATAs

"But with the commitments Tata have given to the future of Jaguar Land Rover and

the long-term supply agreements for components, especially engines from Bridgendand Dagenham (Ford sites in Britain), we're obviously pleased they are in thegame."

Ford announced it was selling Jaguar and Land Rover last year as part of arestructuring after the US group posted a record loss of almost 13 billion dollars.

Tata was expected to keep the current business plans of Jaguar and Land Roverthrough 2011 and retain Jaguar's headquarters in Coventry, central England,according to British union officials.

Land Rover -- also based in central England and which is celebrating its 60th

anniversary -- has been largely profitable for Ford since the US group took it over in2000.


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NEW IDENTITYTATAs JaGuar and LandRover


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Finally , The Verdict


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THANK YOU

tata and jlr

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