Tata Motors - Financing the Acquisition of Jaguar and Land Rover

            
 
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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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Case Details:

Price:

Case Code : FINC050 For delivery in electronic format: Rs. 400;
For delivery through courier (within India): Rs. 400 + Rs. 25 for Shipping & Handling Charges

Themes

Sources of Finance, Capital Structure, Capital Budgeting
Case Length : 21 Pages
Period : 2008-2009
Pub. Date : 2009
Teaching Note : Available
Organization : Tata Motors
Industry : Automobiles
Countries : UK/India

Abstract:

In June 2008, India-based Tata Motors acquired Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 2.3 billion. To finance the acquisition, Tata Motors raised a bridge loan of US$ 3 billion from a consortium of banks. Tata Motors planned to raise Rs. 72 billion through three simultaneous but unlinked rights issues. However, the rights issue ran into problems as the share price of Tata Motors continued to slide down, after the issue opened. The shares were available in the stock market at a much lower price compared to the price offered by the company. Other options to obtain funds like divesting stake in the group companies, floating international equity related issues were also scrapped, due to adverse market conditions.

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At this juncture, in order to obtain funds, Tata Motors announced public deposit scheme in December 2008.

Through all the fund raising efforts, the company was able to repay only US$ 1 billion by the end of 2008. Tata Motors was required to repay the entire amount of bridge loan by June 2009. Due to adverse financial conditions and credit freeze, Tata Motors announced that it was planning to roll over the bridge loan, which was estimated to further add to the debt burden of the company.

Issues:

Understand acquisition of JLR as an example of Tata Motors' inorganic growth strategy.

Understand the impact of macroeconomic factors on the global automobile industry.

Understand the implications of global credit crisis on the availability of funds for corporates.

Analyze different modes of finance available to finance cross border acquisitions.

Contents:

  Page No.
Introduction 1
Background Note 2
Ford Sells JLR 5
Plans to Finance the Acquisition... 7
...Go Haywire 8
JLR Requires More Funds 9
The Road Ahead 10
Exhibits 12

Keywords:

Tata Motors, Ford, Jaguar, Land Rover, Acquisition, Bridge loan, Global financial crisis, Leverage, Debt Financing, Rights issue, Differential voting rights, Overseas floatation, Convertible preference shares, Fixed deposit schemes, Capital Budgeting, Capital Structure, Sources of Finance

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