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On June 11, 2007, Tata Motors, India's largest automobile manufacturer, expressed its interest to acquire the premium European car brands Jaguar and Land Rover brands owned by Ford Motor Company (Ford Motors).
The deal if successful was expected to be one of India's biggest overseas takeover bids in the automotive sector. The deal was estimated at US$ 1.5 billion. It was reported that Tata Motors may finance the deal along with Fiat S.p.A (Fiat) or tie-up with an equity player.
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However, some analysts indicated that Tata Motors was capable of financing the acquisition as it had a cash pile of Rs. 60 billion and free cash of over Rs. 10 billion for the financial year ended March 31, 2007.1 The Jaguar, Land Rover, Aston Martin and Volvo brands were acquired by Ford Motors' as part of its strategic move in the luxury car segment in the 1990s.
Founded in 1903, Ford Motors is the world's third largest automotive manufacturer. The company's revenues were US$ 160.1 billion in 2006. The decision to sell these luxury brands was part of the restructuring exercise called the ‘Way Forward' plan initiated at Ford Motors in January 2006.
Many analysts saw the deal as a step in the right direction as Ford Motors was going through a difficult period. It had reported a loss of US$ 12.7 billion for the financial year ended December 30, 2006. Earlier in March 2007, Ford Motors had sold its luxury brand, Aston Martin to a UK-based company for US$ 848 million.
At that time analysts had predicted that Ford Motors would also sell its Jaguar and Land Rover brands as they had a significant contribution to the company's losses. 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.
The move by Tata Motors was also seen as the Tata group's emphasis on globalization. In January 2007, Tata Steel Limited had acquired the Anglo-Dutch steel company, Corus Group PLC (Corus) for US$ 12.11 billion. The Jaguar-Land Rover deal was expected to help Tata Motors gain a foothold in the European market.
In addition to Tata Motors, other companies like auto major, Mahindra & Mahindra and private equity firms like Cerebrus, and Ripplewood Holdings were also in the race to acquire the Jaguar and Land Rover brands.
John Gardiner, spokesperson, Ford Motors confirmed this and said, "Ford and its financial advisers have had contacts from third parties and they are actively evaluating those as part of Ford's strategic review. These are preliminary discussions only and no decisions have been made."2 Analysts opined that the strength of the Tata Group may give it an edge in this deal.
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1] "Tata, M&M Eye Jaguar, Landrover," www.autoindiatimes.com. July 19, 2007.
2] "Ford Confirms Bids for Jaguar, Land Rover," www.business-standard.com, July 20, 2007.
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