JLR Parks in Tata Garage

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Unions back $2.3-bn deal; stock flat

Ending months of speculation, the $7.2-billion Tata Motors Ltd announced on Wednesday that it had entered into a definitive agreement with Ford Motor Company for the purchase of Jaguar Land Rover (JLR)—comprising the marquee brands, plants and intellectual property rights—for a sum of $2.3 billion to be paid in cash. The transfer of ownership to Tata Motors is expected to close by the end of the next quarter, subject to regulatory approvals.

The purchase of JLR by the Tata group marks yet another milestone in a series of high profile acquisitions that the Indian group, once known for being conservative and slow-moving, has made of late. Last year, it bought UK steelmaker Corus Plc for a jaw-dropping $12.7 billion.

The latest acquisition also means that Tata Motors now owns one of the most prestigious brands in the global automobile space and can boast a full range of cars, right from the Rs 1- lakh category to Rs 1 crore. Tata Motors will also finally have access to the global market, despite a ten-year presence in the domestic car market. Tata Motors will be the 100% owner of JLR. At the transfer of ownership, Ford will contribute up to approximately $600 million to the Jaguar Land Rover pension plans.

Commenting on the deal, Ratan Tata said, “We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business.”

Addressing a conference call on Wednesday evening, Tata Motors managing director Ravi Kant, one of the chief architects of the deal, said the transaction would be funded by bridge financing of $3 billion from a clutch of banks, later replaced by a mix of long-term debt, equity and some disinvestments from Tata Motors’ holdings in group Companies. “The circumstances and market conditions will determine the extent of funding,” C Ramakrishnan, CFO, Tata Motors, added.

Declining to divulge further details of JLR’s financials at this point, Ramakrishnan said the turnover was upwards of $14 billion and that the combined JLR was a profitable entity.

Kant said Ford would continue to supply JLR for differing periods with powertrains, stampings and other vehicle components, in addition to a variety of technologies such as environmental and platform technologies. “Ford has committed to jointly working on supplies and we are very happy with the arrangement,” Kant said.

Tata and Ford have also decided that Ford Motor Credit Company, which normally does not offer credit to non-Ford brands, would provide financing for Jaguar and Land Rover dealers and customers during a transitional period of up to 12 months, depending on market. “In the meantime, we will work out other financing arrangements,” Kant explained.

Tata Motors, always the front-runner in the deal— which also saw Indian rival Mahindra & Mahindra throw its hat into the ring when it was announced in August 2007--was chosen as a preferred bidder on January 3, 2008. Industry experts reckon that the Tata culture of managing change and human relations, apart from a global presence, saw it edge out competitors.

Alan Mulally, president & CEO of the Ford Motor Company, said, “Jaguar and Land Rover are terrific brands. We are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata's stewardship.”

The unions are clearly pleased with the deal as well. Roger Maddison, national officer of Unite, the largest union in the UK auto industry, said, "Today's deal is really good news for the UK automotive industry and the thousands of people who work for Land Rover Jaguar and its supply chain.”