Deal dynamics were conducive from TAMO’s perspective
The circumstances could not have been more fortuitous for such a strategic foray for TAMO. The virtual freeze in the credit markets and slowdown in US markets meant that there were no serious private equity players or auto companies to create any price tension. From TAMO shareholders’ perspective, there was minimal risk of over-payment. Additionally, the negotiated nature of the deal provided both parties with enough head-room to negotiate a fair deal. It has also given TAMO the opportunity to assess the asset from a close range and also meet the various stakeholders such as JLR management and union representatives. Media statements from labour union representatives indicate that TAMO has already signed definitive agreements with respect to staffing. We believe this provides a strong foundation for JLR’s smooth transition from Ford to Tata Motors.
Value of acquisition depends on TAMO’s execution which investors are skeptical of
We believe TAMO bought the asset at 4.3xCY07 EV/EBITA and 0.94xCY07 P/B. While we remain positive on the outcome and valuation of the acquisition, the hard part has just begun for TAMO. Usually, automobile companies are available for twice their revenues. Tata Motors itself trades at three times its estimated revenues of $3.04 billion for FY09. The current deal size is just about 17% of the revenues. Having gone through the hands of...