Vroom with a view

Written by The Financial Express | Updated: Mar 30 2008, 03:46am hrs
Stockmarkets are busy looking at a list: Tetley, Daewoos commercial vehicle unit, NatSteel (Singapore), Teleglobe International Holdings (US), 30% of Energy Brands (US), Corus, coal mines from PT Bumi Resources (Indonesia), General Chemical Industrial Products (US) and now Jaguar and Land Roverall overseas acquisitions by Tatas. Depending on the context, overseas acquisitions can make business sense, since theyre often more economical than greenfield investments. With its visibility and equation with national pride, the automobile sector is special, and hence the good-natured flag waving: an Indian company will now make cars spanning prices from Rs 1 lakh (Nano) to Rs 1 crore (Jaguar). However, stockmarkets seem to be saying that pride is one thing, business quite another. While Japan and South Korea also took their automobile industries global through acquisitions, no other company has ever had the range that Tata Motors now possesses. There is also Xenon that has been launched in Southeast Asia. Is this broad canvas warranted Stockmarkets seem to vote against the idea. It is foolish to underestimate the Tatas. But then again, all acquisitions have failure risks. So, lets look at market apprehensions.

First, marketmen are fretting about what has made union leaders happythat until 2011, there would be a freeze on slashing jobs in the British plants and relocating production abroad. A related question is whether there will be flexibility later in relocating production and cutting costs. Second, analysts are suspicious that Ford was delighted to get rid of the loss-making Jaguar, especially since, as they argue, there were only three bidders, two of them never really in with a chance. Had restructuring plans for Jaguar and Rover been credible, wouldnt there have been more bidders Third, with a global downturn and rising interest rates, is this a well-timed buy Fourth, markets wonder how the Tatas will raise resources, not just for this acquisition, but also for broader investment plans. Increased debt has already been reflected in share prices. Fifth, markets seem to be less enamoured than the media of Jaguar and all its classiness. How appealing is Jaguar today These are questions any shareholder can ask. How the Tatas answer them will be fascinating to watch.