Tata in pole position for Jaguar and Land Rover

Ford says Tata Motors is a frontrunner in the bid to buy its Jaguar and Land Rover businesses, suggesting the Indian group is set to chalk up more ambitious cross-border M&A deals in 2008.
IndiaÆs Tata Motors has stolen a march on its rivals in the race for Ford Motor CompanyÆs Jaguar and Land Rover businesses with the US firm agreeing to further dialogue with the Indian bidder. No financial data has been disclosed but there is speculation that the Tata bid could be in the range of $2 billion to $2.5 billion.

On January 3, Lewis Booth, Ford's executive vice president who oversees Ford of Europe and the Premier Automotive Group (which comprises Jaguar, Land Rover and Volvo) confirmed that Ford would enter into detailed discussions with Tata Motors with respect to ôthe potential sale of the combined Jaguar Land Rover businessö. Booth however cautioned that a final outcome was still uncertain and could take weeks to reach.

Tata Motors is bidding for brands with considerable history attached to them. The Land Rover brand is around a century old and the Jaguar brand was first launched in 1935. Ford acquired Jaguar from Leyland in 1990 and Land Rover from BMW 10 years later in 2000.

In mid-2006, as part of a review of its global operations, Ford appointed Goldman Sachs, HSBC and Morgan Stanley to advise on the best options for the Jaguar and Land Rover brands. Ford has faced difficulties extracting value from the brands. The cash infusion from the sale is expected to bolster liquidity for the cash-strapped American automobile major and the move is intended to enhance FordÆs focus on its core brands.

The sale follows FordÆs March 2007 announcement that it had divested Aston Martin, its sports car business, to a consortium of investors for $925 million.

Other than Tata Motors, contenders for Land Rover and Jaguar at various stages have included: Indian automobile sector player, Mahindra & Mahindra (said to be bidding in a consortium with Apollo Management); and private equity firms, Alchemy Partners, Blackstone Group, Cerebrus Capital Management, One Equity Partners, Ripplewood and TPG.

The Tata bid received a shot in the arm in late November when unions representing workers at the Jaguar and Land Rover plants in the United Kingdom endorsed the Tata bid. Ford has assured unions that job protection is a key consideration and the Tata reputation as a benevolent employer probably stood them in good stead.

Analysts have also speculated that Ford could favour Tata as the Indian company could provide access to a key emerging market where Ford has not yet got its strategy right.

For the Indian firms in the fray, the brands represent an opportunity to gain credibility with consumers in markets which are critical to their export strategies and gain access to research and development capabilities.

But MoodyÆs Investors Service is less impressed with the rationale underlying Tata Motors' move and on January 4 put the Tata Motors Ba1 corporate rating on review for possible downgrade. The ratings agency expressed concern with respect to execution and integration challenges Tata Motors could face and also commented: ôthe acquisition will expose (Tata Motors) to the luxury product category as well as to broader geographies, areas in which Tata Motors lacks experience".

Moody's acknowledged that in the long term, the deal ôcould elevate Tata Motors from a major Indian player into a global automobile manufacturer, enlarge its operating scale, improve its technology base and broaden its product rangeö.

Tata Motors is India's largest manufacturer of commercial vehicles and second largest manufacturer of passenger vehicles with a product range spanning light, medium and heavy commercial vehicles, utility vehicles and cars. It is part of one of IndiaÆs leading business groups, the Tata group.

Tata Motors shareholders seemed to share MoodyÆs nervousness regarding the acquisition and the shares lost 1.25% on the Bombay Stock Exchange on Friday to close at Rs784 ($20.02). The broader BSE index, the Sensex, gained 342 points to close at 20,687, causing punters to start giving odds that the Sensex would breach 21,000 in the coming week.

The Tata group is cementing the tradition it started in 2005-06 of making its advisers work on its cross-border acquisitions over the traditionally lean Christmas and New Year break. In December 2005, ABN AMRO, Deutsche Bank and Rothschild were busy putting together Tata Steel's revised bid for British steel manufacturer Corus; the advisers saw their efforts rewarded when Tata Steel trumped competing bidder CSN from Brazil to win Corus in early February. Citi and JPMorgan, who are advising Tata Motors on the Land Rover and Jaguar bid, must be keeping their fingers crossed for a similar outcome.
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