Tata Jlr Acqusition

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Case Study|
Strategic Management|
10th August 2010|

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Introduction
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 centers in the UK, national sales companies spanning across the world, and also licenses of all necessary intellectual property rights. There was widespread skepticism 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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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 centers 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 $3 billion (about Rs 12,000 crore) through bridge loans for 15 months from a clutch of banks, including JP Morgan, Citigroup, and State Bank of India. Tata came under cash crisis because of the Corus deal and the huge investments in the TATA Nano project which itself was surrounded in a lot of uncertainties. The credit rating companies also took a negative outlook toward this deal because of the huge debt requirement to complete the deal. Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation in the automobile industry. The company acquired Jaguar from British Leyland Limited in 1989 for US$ 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 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.

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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 I for the details of the group's international acquisitions). Tata Motors' long-term strategy included consolidating its position in the domestic Indian market...
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