Tata Motors - Financing the Acquisition of Jaguar and Land Rover

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Case Details:

Case Code : FINC050
Case Length : 21 Pages
Period : 2008-2009
Pub. Date : 2009
Teaching Note : Available
Organization : Tata Motors
Industry : Automobiles
Countries : UK/India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Today, JLR looks like the worst possible deal at the worst possible price at the worst possible time. Tata structured the deal in a way typical of the buyout boom's excesses: it took out a $3 bn bridge loan to fund the purchase and provide working capital, intending to pay part of it back through a rights issue, sales of stakes in other subsidiaries and raising some longer-term debt. Unfortunately, in today's climate, refinancing that short-term loan is looking more difficult."

- Cris Sholto Heaton, Reporter, MoneyWeek, in January 2009.

"There is a liquidity crunch and companies need money. If you are not getting funds from banks, you go to public for deposits. There is a big problem for finance at Tata Group after all their acquisitions and loans. There is urgency for money."

- Amit Kasat, Analyst at Reliance Equities International Pvt. Ltd. , in Mumbai, in December 2008.

Introduction

On January 27, 2009, UK's business secretary, Peter Mandelson (Mandelson), announced a financial package worth £ 2.3 billion to support the country's car industry . Out of the package, £ 1.3 billion was demarcated for loan guarantees to auto manufacturers from the European Investment Bank and £ 1 billion from the Government. Mandelson said, "There is no blank check on offer, no operating subsidies. We are committed to ensuring that anything backed by the scheme offers value for taxpayers' money, enables us to green Britain's economic recovery, delivers significant innovation in processes or technologies for the long term, supports jobs and skills in Britain."⁵

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1] Cris Sholto Heaton, "Why Asia Looks Less Vulnerable than the Rest of the World," www.moneyweek.com, January 19, 2009.

2] "Tata Motors to Borrow at 11% to Fund JLR Buy," www.bloomberg.com, December 02, 2008.

3] Reliance Equities International Pvt. Ltd. is institutional stock broking subsidiary of Reliance Capital, a part of India-based Reliance ADAG.

4] As on February 15, 2009, 1 £ ≈ US$ 1.45 ≈ INR 70.23.

5] "UK: Auto Industry Gets GBP 2.3 bn Government Boost," www.just-auto.com, January 27, 2009.

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