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Jaguar and Land Rover Acquisition
Student: Monique Marins Leite Pereira
Reg. No.: 140039440
Lecturer: Alina Kudina
Msc. International Business Economics -2015
Jaguar and Land Rover …………………………………………………………3
i. Economic Rationale
ii. How business theory can explain the rationale?............................................... 6
The aim of this coursework is to answer the following four questions:
What was the strategic and economic rationale for the acquisition in the case?
What strengths of Jaguar and Land Rover were the most valuable for Tata?
What were the major challenges for Tata Motors in this acquisition?
What were the major potential synergies from the deal? Were they realised?
The coursework will answer these questions by presenting the topics, arguing about
the main aspects as well as applying business theories to analyse the case study.
For this purpose, I will use the case itself and the material provided by the professor
Alina Kudina, I also included some recent data with the aim to highlight some
Nowadays Tata Group is one of the India´s biggest business conglomerates and it was
established by an Indian industrialist called Jamsetji Tata – known as the “Father of
the Indian Economy”. In the first moment, the conglomerate was established as a
private trading firm in 1868. In the previous decade, Tata has posted a revenue over
$30 billion among a diversified business sectors such as communications,
engineering, energy and so on.
The conglomerate includes several companies, which TML was the automobile
manufacturing. TML major segment included commercial (medium and
heavy commercial) and passenger vehicles (small cars).
Jaguar and Land Rover
Jaguar and Land Rover (JLR) integrated the Ford's Premier Automotive Group (PAG)
and they were one of the most important British icons. Jaguar is committed with
manufacture of high-end luxury cars and Land Rover manufactured high-end SUVs.
It is important to mention that PAG is also responsible for Aston Martin and Lincoln.
Corporations have been following an upward tendency of mergers, joint ventures and
acquisitions, which results in new strategies and approaches. The scenario can be
more challenging when it happens internationally and the company needs to deal with
different cultures. Nonetheless, the need to expand the business is responsible for a
huge slice of Foreign Direct Investment (FDI) worldwide crossing several sectors and
Clearly factors as globalization and technology are responsible to accelerate this
process by accessing markets and human capital rapidly. Companies increased its
economies of scale by conquering new markets and new public. This need is the
reason why Tata Motors decided for the acquisition of Jaguar and Land Rover (JRL),
which involved advantages as well as pitfalls.
Question 1: What was the strategic and economic rationale for the
acquisition in the case?
i. Economic rationale
Tata Motors (TML) acquired Jaguar Land Rover for many reasons. First of all, it
made part of the strategy of TML. The acquisition would have been able to launch
Tata worldwide by providing it better technology and broadening its product range.
Tata was well established in India but it had problems to expand globally because of
the high entry barriers of the automotive sector. With the acquisition of JRL, Tata
would be in charge for two well-known brands which could allow it easy access to
Tata aimed to improve its technology in order to ingress into the international markets
and JRL would support it by providing technological know-how. Moreover, the terms
of the contract with Ford covered the provision of technology know-how to Tata for a
period of time. With the acquisition, it would be possible to expand the range of
products which focused in the very beginning on low end cars. Tata would also
broader its consumers by selling to luxury market as well. Therefore, the acquisition
would provide gain of competitiveness such as technology, brand names valued and
logistical and distribution advantages while getting advantage among others
competitors in the Indian market.
Also, the acquisition of JLR could allow TML to perform better in the financial
markets. Actually, before the acquisition, speculations that Tata was the preferred
bidder for Jaguar and Land Rover made of its shares go upwards1
. In order to
understand the rationale behind the acquisition, it is important to analyse the
performance of Tata in the market.
In 2004-2005, TML market share was 59.7% in commercial vehicle segment with
sales of 1,89,993 vehicles which is very impressive. Regarding to passenger vehicles
segment its market share was 16.9% with sales of 1,79,076 vehicles in 2004-2005.
JLR posted record sales of $1.5 billion at the end of the 2012-2013 financial year.
According to the table, it is possible to highlight the growth in commercial Vehicles
as well as Passenger Vehicles form 2003 – 2007. In the following table with more
recent figures we can also observe that TML maintains the same level of growth of
the previous years in the same segments.
In order to understand the rationale it is helpful to go back some years and check
some points regarding Land Rover acquisition by Ford in 2000. Ford acquired Land
Rover in 2000 for U$2.7 billion from BMW and in 2002 the activities of Jaguar and
Land Rover were completely integrated. They had an engineering team, technology,
powertrains. Others functions were also integrated such as IT, quality and finance.
Even though they have resources and managing, Ford failed in their strategy to reach
young public by launching “retro” looking cars.
When Ford acquired Land Rover, the rationale behind this case was the loyalty of the
customers: Jaguar and Land Rover customers were seen as being extremely
nationalistic and brand loyal. However, Jaguar customers were more traditionalists.
Again, Ford failed in choosing a properly strategy by building Jaguar on the Mondeo
platform which dilute Jaguar´s premium image. Due to huge losses, Ford needed to
sell it. What is important to retain from the previous case is the wrong strategy
adopted by Ford because they don´t use the potential of JRL.
ii. How business theory can explain the rationale?
Business theories can support the analysis to try to understand this case. First of all,
TML sought to expand public markets, sell more by offering more products or
diversifying it and theory points out the growth necessity as reason which explains
perfectly this behaviour of TML when acquired Jaguar and Land Rover. TML needed
to growth and the acquisition was the mean for it.
“Acquisition of JLR provides the company with a strategic opportunity to
acquire iconic brands with a great heritage and global presence, and
increase the company's business diversity across markets and product
Tata Motors, in April 2008
Moreover, the shareholder will be added value once the market share is increasing.
This is what theory also assumes and we can observe it as well. Once TML expands
its operations by reaching another segment its profits will probably increase
considering a balanced statement. Therefore, the markets and in this case (I am also
referring to financial markets) will assimilate this expansion as growth of the
company which makes them more solid, more reliable and transmits a message to
investors that is a good investment. By diversifying its operations and public, TML is
also diversifying its risk as well because the chance of bankruptcy decreases once the
company broader its operations. As a consequence, TML can also be considerate by
risk-averse investors a less risk investment.
1.1 - Strategy
Tata Motor´s had a clear strategy regarding the consolidation of the company: keep
investing on Indian market but also expanding towards international markets by focus
on the development of the products as well as acquisitions and collaborations.
Ford decided to adopt a new strategy – “The Ford Forward” which consisted in
dismantling PAG as a part of a plan to integrate the brand globally and for this reason
Ford sells one of its the most luxury brand – Land Rover and Jaguar for $2,3 billion in
2008. One aspect that must be highlighted about this acquisition is that TML
demonstrated interest in keeping the brands identities intact at the same time
incorporating the expertise and experience of the employees to its growth.
This acquisition represented a huge step once TML could enter into a global market
by adding technology and diversifying its products. Moreover, TML now could reach
a selected public – emerging markets which countries have expressive growth in a
short period of time. This suddenly growth sometimes is not sustainable and equal
among the population has created a high society, which is able to consume these
luxury products such as in India.
Nonetheless, there are some considerations before continue. Theory argues that a way
to “be global” is looking for resources, markets and productive advantages. In this
case, Tata is looking for a new segment which means new market. TML acquires
Jaguar and Land Rover in order to incorporate expertise & technology and it
represents a chance to expand the business into emerging countries, precisely luxury
The necessity to go abroad and expand its operations is to decrease the dependence of
the Indian market which is responsible for 90% of the sales and this strategy is
supported by theory as the growth necessity. Therefore, it would expand the markets
not only geographically but also across different segments. With this acquisition TML
would its efficiency in terms of economies of scales once the sales will increase as
well as the profit.
So relevant as the economy of scale is the economy of scope in this case. The
acquisition also means the acquisition of technology and expertise so that TML can
improve its low-ends cars without extra expenses because it would be integrated. The
production of vehicles depends on the research and ongoing improvements in its
Acquiring an enterprise anywhere in the world has three common elements and for
TML would not be different. The theory points out some steps that support us to
understand this case:
• Identification and Valuation of the Target (acquiring a good vs.
Jaguar and Land Rover are considered a good company due to its good
reputation among the luxury segment. The decision of Ford to sell its
brand concerns Ford strategy which does not mean necessarily that the
brand was not doing well.
• The Tender or Completion of the Ownership Change Transaction
(approval of the target company or if not, hostile takeover;
regulatory approval; compensation settlement)
In this case, the acquisition was made in a compensation settlement
basis in which TML paid ($2,3billion) for the operation. In other
words, it was a cash deal.
• Management of the post-acquisition transition
This step is the most challenging for TML once the loan required for
the acquisition has caused uncertainty among the investors and there is
synergy issue as well. Therefore, TML has to handle these two main
Question 2: What strengths of Jaguar and Land Rover were the
most valuable for Tata?
The acquisition of JRL would bring many advantages for Tata Motors due to its
potential strenghts. First of all, JRL would offer access to technology and expertise
which would be useful to improve the quality of Tata products in the Indian market.
For this reason the acquisition of JRL represents less dependence of India market
once Tata would offer better quality products and could eliminate competitors.
Therefore, it would expand the markets not only geographically but also across
The acquisition also means the acquisition of technology and expertise so that TML
can improve their low-ends cars without extra expenses because it would be
integrated. The production of vehicles depends on the research and development and
by acquiring JRL Tata will decrease the costs in these fields at the same time improve
The acquisition Tata Motors was also an opportunity to sell for a high-level segment
worldwide – the luxury segment. The segment is very attractive because it will
always have demand for these products and they are loyal to the brand.
“For any company with aspiration to become a global player, there’s a good
Peter Cooke, University of Buckingham
One of the main strengths of this acquisition would be synergy in areas of component
sourcing, engineering, and design. Although many analysts pointed out some
problems regarding it, for TML synergy will give TML the possibility to reduce cost
by using the expertise of JRL. The benefits encompass more areas such as JLR´s
service and distribution networks, which is quite important to the worldwide
expansion. With the acquisition Tata Motors will be selling cars from US$2.500,00
(Nano car) to US$65.000,00(Jaguar)2
Finally, there are some strengths regarding to the infrastructure of JRL that attracted
Tata. By 2006, JRL had three manufacturing sites spanning an area of more than 800
acres; two advanced designed centres with over 16,000 workforce. The facilities
offered by the advanced design centres made part of the rationale behind this
acquisition. The facilities included: design studio, vehicle development, power train
engineering, power train development and power train integration. Therefore, Jaguar
Another example of successful case was Corus acquisition even tough some experts criticize it
and Land Rover offered advantages in many sectors and for this reason Tata Motors
was interested in acquiring the brand.
Question 3: What were the major challenges for Tata Motors in
One of the most relevant challenges is enter in a very competitive market selling cars.
Given that this market is not growing, TML would have to think about another
strategies to attract customers. Moreover, in the last decade environment issues have
gaining more relevance and company as well as individuals are adapting its products
and habits to new requirements. As a consequence, products are being consumed
more consciousness regarding to their impact in the environment.
For awareness or marketing reasons, the fact is that companies are following this
trendy and they are producing according to emission regulations. The problem is not
only adapt some features of the cars to “green” norms, but TML would have to build
and develop its own engine and use its own technology to build more sophisticated
cars with transmission and safety system that other luxury brands normally adopts.
The acquisition of JLR is a real challenge with regards to CO2 emission once the
European Commission changed the legislation which heavier cars would pay more.
Jaguar and Land Rover had relatively high emissions 3
which would not be
because Tata did not sell vehicles in Europe. However, Tata Motors
had plans to launch the Nano Car in Europe by 2012.
Another issue rose by specialists was regarding to global markets. The market
conditions were not favourable to growth and for this reason it could be a real
challenge for TML.
"Market conditions are now extremely tough, especially in the key US
market, and the Tatas will need to invest in a lot of brand building to make
and keep JLR profitable."
Ian Gomes, Global Head, Emerging Markets, KPMG, in 2008
Apart from structural challenges, TML faced some financial issues. After the market
knows that TML was the “preferred bidder” of Ford once TML would be able to meet
the workers requirements5
, TML´s stock started to drop. TML had to pay over $2
billion for the acquisition in cash free debt-free basis which refers to the amount the
3Jaguar’s most fuel efficient model, the X-type, emitted around 194 grams of C02per kilometer.
Manufacturers could produce cars that have higher emissions provided they also produce smaller cars
with lower emissions that would offset the higher emissions.
The main reason for this was to avoid moving factories out of Britain which would causes job losses.
buyer would pay if the seller had no debt and no cash on the balance sheet of the
company. Nonetheless, it should be invested even more on JRL in order to develop
facilities and marketing.
For this purpose, TML arranged a loan of $3 billion from a group of banks like
Citigroup which could impact negatively by increasing the interest cost and reducing
the earnings per share. Investors needed to know what were the actual liabilities of
Tata Motors´s balance sheet. Regarding to what business theory offers as options of
payments, it is possible to identify that this transaction was clearly a “cash deal” - a
paying real ($2,3billion) for Jaguar and Land Rover. From that point, TML assumed
all of the risks and rewards.
Moreover, TML also spent a lot of its capital developing and launching Nano car and
on a joint venture with Fiat to build vehicles in India and Thailand. The last events
had also incurred to raise concerns about these acquisitions and about the profitability
of Tata Motors in the future. Even Moody, a firm in charge to rate companies and
countries in terms of risk, raised concern about this operation and the finances
The comparative advantages of TML were to produce with low investment and make
a greater profit compared to his competitors. TML was successful by developing a
range of products keeping the costs down. A successful case was the acquisition of a
Korean truck maker – Daewoo Commercial Vehicle Company (DWCV) in 1982. This
was an acquisition that provided TML access to technology as well as complementary
product range. Therefore, TML managed to improve its portfolio without affect the
financial performance in this case.
However, in the case of Jaguar and Land Rover it must take into account that now
TML is acting in two different segments which means two different public and
different types of investment. For this reason, the ability of TML manage the brands
considering the financial expenses must be analysed in order to know if TML is able
to afford it.
Some experts shed light on this issue by pointing out a synergy problem. TML is very
popular in the low to mid-end segments and the acquisition of Jaguar and Land Rover
would be an attempt to get into a new segment. Nonetheless, these products are
completely different and the lack of synergy between them could impede Land Rover
and Jaguar dealers to sell Tata vehicles. In order to face synergy problem, TML
should invest on Jaguar and Land Rover brands to remain attractive.
"If they run the brands as a British company and invest properly in new
product, it will be successful because they are still attractive brands."
Charles Hughes, Founder, Brand Rules LLC, in 2008
Apart from synergy there was another challenge: competition. Luxury markets is a
restricted market dominated by some suppliers, which trade in a global scale. In India
was not different, TML would compete with known names such as Porsche and Audi.
Moreover, in a global scale, TML would compete to conglomerates that were well
established in the market such as Daimler, BMW, Toyota and so on. Therefore, Tata
Motors succeed or not? How to measure it?
Concerning to business theory, it was not clear at that moment if this case would be
considered successful according the general classification that theory suggests -
minimal test: value of the combined company is equal to the value of both companies
plus the bid premium. The balance statement was not clear about the financial health
of the company and after the acquisition the demand for luxury cars has decreased as
a consequence of global crisis. Therefore it would be precipitated end up with some
final conclusion. Nevertheless, many years after the acquisition, this case is
considered a successful case once TML was able to create substantial shareholder
value for Tata and received substantial support from stakeholder groups in the UK.
One of the major challenges faced by Tata was the cost of essential components. By
the time TML bought JRL, the access to engine technology for a period of time was
settled in the contract but if prices of the components increase, Tata would have to
bear the costs in order to keep building vehicles. On the other hand, Ford might not to
provide these components by fixing price contracts once it was extremely volatile.
Therefore, TML had to deal with many challenges.
Question 4: What were the major potential synergies from the deal?
Were they realised?
One of the major reasons for a company to acquire another, according to acquisitions
and merges theory, is the possibility to obtain synergy in order to be competitive. In
the case of Tata Motors, there were potential synergies involved. The Indian group
responds for others companies as well, such as: i) Tata Auto Comp Systems Limited
(TACO), owned by Tata, specialized in the provision of products and services in the
automotive industry; ii) Tata Consultancy Services (TCS): it is an Indian
multinational information technology services; Tata Steel6
: is a multinational based in
London, which produces steel and it is one of the largest in this area in Europe.
The potential synergy in this situation is huge once TML was acquiring also the
expertise and the technology of JRL which would be useful to improve the quality of
Tata products in the Indian market. One of the most remarkable features of the JRL is
the design and Tata would incorporate it in the other companies of the group. One
proof that it was realised is the new range of Tata truck launched last year .It has a
global design that matches aesthetics with enhanced comfort, fuel-efficiency and low
Tata Steel is part of Corus group owned by Tata.
Another aspect also important in terms of synergy is the reduction of production
costs. The cost will decrease because of synergy with Corus (another company of the
same group). Apart from the production cost, it is also important to look at the
operational costs because Tata will spend less money on Research and Development.
Also, qualified personnel represent another synergy once Tata can transfer the
workers from the UK to India or vice versa.
All these synergies summed up roughly $450 million that Tata saved in production,
procurement, financing, in the first three years after the acquisition which proved that
the synergies made Tata better off. Therefore, the acquisition of JRL will improve the
financial situation of Tata because Tata would reduce the cost of production and as a
consequence it will increase its margin of profit. Although Tata invest US$ 3 billion
to acquire JRL, the reduction of cost production would offset this loan. Finally, JRL
will allow Tata access to the luxury market.
From the table below, it is clear that Tata has improved its financial situation. The
value of its stock has been going upwards in the post-acquisition years.
The company reformulated its strategy by creating cars with a higher standard and
quality, returning the prestige to the brand. One aspect that theory considers is
“Management of the post-acquisition transition” which Tata could managed it by
ranking goals and accomplishing it. One of the goals in 2011 was to increase the
production from 250K to 750K units in the next ten years. Establishing goals is a
good way to manage a company and Tata has showed that all the steps were reached
which improve the credibility of the company.
After several riots against the excessive use of cars and the global concerning about
the damaging effects of pollution, the use of Gas Vehicles is a new tendency. It is
more sustainable resource and it has been suddenly growing in the last decade as we
can observe the table. Nowadays, the cars manufacturers have tried to incorporate it
into new vehicles what can be interpreted as a powerful tool of marketing.
Another issue is the fact that European and US automobile markets are slowing down
and would affect Tata sales and profits. The tendency for the next years, based on
what has been happening, is the expansion towards countries like Russia, China, India
and Middle East. China automobile market is growing fast and with the investment on
more efficient cars in terms of emission of CO2, certainly it would be a huge market
The updated chart below show us that the revenue in China has increasing
This is an updated Credit Rating Profile of Tata Motors carried by the main firms in
charge to rate companies and countries according to the risk. It is important to remark
that TML is performing well.
- Study Case provided by the lecturer.
- Bloomberg. Accessed on 14 March 2015. Available at:
- Seeking Alpha website. Accessed on 16 March 2015. Available at:
- Tata Motors website. Accessed on 16 March 2015. Available at:
- Article from “Telegraph”. Accessed on 20 March 2015.
- Article from “NYT”: Accessed on 20 March 2015. Available at:
- Beta tutor website. Accessed on 19 March 2015. Available at:
- Rugman and Collinson, International Business, 6th
edition, Prentice Hall