Tata Sons finance director Ishaat Hussain stated Tata’s aversion to “sick, tottering company” as a major determinant of M&A. Looking at Jaguar’s profitability over the years, it seems unreasonable for Tata to bid for an unprofitable company. However, Tata should research to unravel the underlying cause of Jaguar’s failing financial performance; if the reason is fixable within Tata’s power without dire financial consequence, it could still make sense for the M&A to proceed.
Land Rover is a more favorable target for Tata because of its profitability and market access. Ravi Kant believed the only way for Tata Motors to enter the U.S. market would be through M&A, and given Land Rover was owned by Ford and has a significant customer base in the U.S., Tata could benefit from acquiring it into its portfolio. Given Land Rover’s advanced technology, brand equity, and developed distribution network, Tata could receive immense amount of information to be used in other products or companies in its portfolio.
However, there are some difficulties arising from both potential M&A. Jaguar and Land Rover’s British union refuses to allow any takeover company to close any of their three existing factories. The union also insists that Ford continues to hold a minority stake after the sale, which will prevent Tata from exerting full control of these companies. Another question that needs to be answered is what value is to be gained from merging luxury automotive brands, like Jaguar, with the Tata automotive brand, which is known for affordability. Furthermore, acquiring these two companies (there are operational complications that prevents buying of Jaguar and Land Rover separately) will require a large amount of money. With major expansion commitments already amounting to nearly $3 billion planned for 2007, this M&A deal – and its subsequent restructuring and reorganizational costs – will put additional stress on Tata group’s already highly-leveraged cash...
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