Tata gets JLR for knock-down price

Ford will pay about $600 million to the Jaguar-Land Rover pension funds.

After nine months of negotiation, Tata Motors finally signed a deal to buy luxury brands Jaguar and Land Rover (JLR) from Ford Motor for $2.3 billion in cash, the largest acquisition by an Indian company in the automobile business.

The purchase price is less than half what Ford paid ($2.5 billion each) to acquire the two brands. Ford bought Jaguar in 1989 and Land Rover from BMW in 2000.

The deal will extend Tata Motors' product portfolio span from a price point of $2,500 to $170,000 and expand its distribution network more than four times to 2,700 outlets in 138 countries.

Ford will pay about $600 million to the Jaguar Land Rover pension funds, the two companies said in a joint statement today.

Along with the two brands the deal will involve the acquisition of plants and Intellectual Property Rights (IPR) held by the two brands.

The transfer of ownership to Tata Motors is expected to close by the end of the next quarter subject to regulatory approvals.

Tata Motors will raise $3 billion (Rs 12,000 crore) through bridge finance for 15 months from a clutch of banks, including JP Morgan, Citigroup and State Bank of India (SBI) to finance the deal. This will be replaced by a combination of long-term debt and equity.

The company is also planning to raise money through equity divestment in some Tata Motors subsidiaries in the next few months.

C Ramakrishnan, chief financial officer of Tata Motors, also said the two companies would be subsidiaries, so the assets of Land Rover and Jaguar will not be on Tata Motors' books.

The two concluded the deal after Tata was declared the preferred bidder in January among others that included One Equity Partners headed by Jacques Nasser, former Ford CEO, and an alliance of Mahindra & Mahindra and Apollo Management.

The Tata Motors' stock nosedived 4.24 per cent during the day to reach the day's low of Rs 651.10 but recovered gradually to end at Rs 679.40, still a dip of 0.08 per cent on the Bombay Stock Exchange (BSE).

JP Morgan and Citigroup had advised Tata Motors on the deal."We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact," Tata Motors Chairman Ratan Tata said.

Ravi Kant, managing director of Tata Motors, added that the top management, including Geoff Polites, CEO of the two companies, has agreed to stay on and has already had a meeting with Ratan Tata. He also said that the deal has the full support of the unions.

Analysts said the company has a robust balance sheet with strong cash flow and EBITDA. "The Tata group has made sure that the deal will not over-leverage their balance sheet," said a source who tracked the deal.

Some analysts, however, have expressed concern over how the global marque brands would fit into Tata Motors' stable of trucks, buses and passenger cars, including the Nano, the world's cheapest car which it plans to launch later this year.

The Tatas will also have to resuscitate demand after Jaguar sales in US and Europe dropped 33 per cent in 2007. Ford doesn't disclose financial figures for Jaguar and Land Rover, whose biggest markets are the UK and the US.

Ramakrishnan, however, said the companies are profitable and have a combined turnover of over $14 billion.

As part of the transaction, Ford will continue to supply Jaguar and Land Rover for differing periods with powertrains, stampings and other vehicle components in addition to a variety of technologies, such as environmental and platform technologies. Ford supplies about 90 per cent of components to Jaguar and Land Rover.

"Jaguar and Land Rovers share many components, from the engines down. Keeping them together makes sense from both an engineering and business point of view," said an analyst.

Ford has also assured Tata Motors of engineering support, including R&D, plus information technology, accounting and other services.

The deal will open the doors to vast technological advancements that both the brands have achieved over the years thanks to funding by Ford. Almost a billion dollars is invested every year as R&D for both the brands.

Tata Motors will eventually be able to trim the costs with the help of sisters companies like Tata Consultancy Services, Tata Technologies and Tata Auto Comp.

The technology sourced from Land Rover will also be used for Tata's range of utility vehicles.

In addition, Ford Motor Credit Company will provide financing for dealers and customers of both brands during the transition period, which can vary by market, of up to 12 months.

Neither party anticipates significant changes to the terms of employment.

Together both companies employ 16,000 people. Alan Mulally, president and CEO of the Ford Motor Company, said, "Jaguar and Land Rover are terrific brands. We are confident that they will continue to thrive under Tata's stewardship."

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