Tata Motors in driver's seat for Jaguar and Land Rover

The Indian company clinches the long-running deal in which Ford will net around $1.7 billion and then continue to provide parts and technology to Tata.
IndiaÆs Tata Motors will buy the Jaguar and Land Rover businesses from Ford Motor for $2.3 billion, subject to a post-closing adjustment whereby Ford will contribute $600 million to the pension plan of the business.

Tata Motors is buying the Jaguar and Land Rover brands, plants and all intellectual property rights related to the brands. The deal is subject to regulatory approvals and is expected to close by June 2008. Tata Motors will pay Ford $2.3 billion, but Ford will then contribute up to $600 million to the Jaguar Land Rover pension plans. Tata Motors is being advised by Citi and JPMorgan.

As part of the deal, Ford will continue to supply Tata Motors with powertrains (engines and transmissions), stampings and other components as well as agreed technologies for the brands. Ford will also provide engineering support (including research and development), information technology, accounting and other services. Ford Motor Credit Company will also provide financing for Jaguar and Land Rover dealers and customers during a transitional period of up to one year.

Tata Motors said in a statement announcing the deal that it does not expect ôany significant changes to Jaguar Land Rover employeesÆ terms of employment on completionö. The unions backed the Tata Motors takeover in November and this was said to be a key element in the Indian company emerging frontrunner. Jaguar and Land Rover together have about 16,000 employees.

Ford appointed Goldman Sachs, HSBC and Morgan Stanley in 2006 to review options for the Jaguar and Land Rover businesses. This announcement was part of FordÆs decision to enhance focus on its core Ford brand, which serves the mass-market.

Jaguar was founded in 1922 and has a product portfolio of luxury saloons and sports cars. Ford bought the Jaguar brand from Leyland in 1989 for an estimated $2.5 billion and is believed to have invested up to another $10 billion in the brand. Jaguar was recently loss-making and its sales in the US specifically, which is a key market, have been falling.

Land Rover launched its first model in 1948 and is known for four-wheel drive vehicles. Ford acquired Land Rover from BMW in 2000 for ú1.7 billion ($3.4 billion). The Land Rover brand has fared reasonably under FordÆs ownership and is profit-making but there is some overlap between FordÆs own sports utility vehicles and Land Rover.

Others that were potentially interested in the assets at different stages in the deal were Indian firm Mahindra & Mahindra and private equity firm, One Equity Partners. Private equity firms Alchemy Partners, Blackstone Group, Cerebrus Capital Management, Ripplewood and TPG are also believed to have looked at the assets.

Following the sale of the Aston Martin brand for $925 million in March 2007 to a consortium of investors and now the sale of the Jaguar and Land Rover brands, FordÆs Premier Automotive Group comprises only the Volvo brand. Ford has said that the Volvo brand will not be sold but some analysts are not convinced and are speculating that Volvo will be next on the block.

Tata Motors is India's largest automobile company, with revenues of $7.2 billion for the financial year ended March 31, 2007. It 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.

The acquisition follows on the heels of Tata SteelÆs acquisition of steel producer Corus in the UK in early 2007 for an equity value of $12.2 billion, and more recently in January 2008 Tata ChemicalÆs purchase of US-based chemicals firm General Chemical Industrial Products for $1 billion.

The Tata group has been on an aggressive cross-border acquisition drive as it seeks to globalise its business. But some market commentators believe it could be over-stretching and that, specifically with respect to this acquisition, it is not obvious how the Tatas intend to create value out of the Jaguar and Land Rover brands. Moody's has also highlighted in the past the risks inherent for Tata Motors of post-merger integration and moving into new geographies and luxury vehicles.

Early on in the bidding process some specialists suggested Tata Motors might be planning to move manufacturing to India which has a lower cost base. But with the kind of commitments Tata Motors has provided on maintaining employment, and with the sensitivity in the UK to shutting down manufacturing, this seems unlikely and Tata Motors has consistently maintained this is not a reason underlying the deal.

Tata MotorsÆ recent success in India has been the launch of the Nano, a $2,500 car which Tata head Ratan Tata had envisioned would make cars affordable for IndiaÆs masses. An upmarket brand like Jaguar seems at variance with this low-end budget vehicle.

Analysts expect that Tata Motors will benefit from the access to technology from the Jaguar and Land Rover brands and that the brands represent an opportunity to gain credibility with consumers in markets which are critical to its long-term export strategy.

"We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact," says Ratan Tata, chairman of the Tata group holding company, Tata Sons and Tata Motors, in a written statement.

The deal was announced after the Indian bourses had closed for trading but news that a deal would be announced and a rough price range had already leaked into the market. Tata Motors closed at Rs680 ($17.03). Ford Motor was up about 1% in early trading on the NYSE on Wednesday to $6.05 then lost ground during the course of the day's trading to close at $5.87.
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