Indian Institute Of Management Bangalore Finance Essay

Amalgamations and Acquisition is the inorganic manner houses adopt to diversify their concern, expand the merchandise portfolio and entry into new market. Cross boundary line MA is the manner for houses to spread out their geographical presence.

In this paper we analysed motive for houses to travel for cross boundary line M & A ; A, what factors impacting the determination to travel for it. Then we analysed two cross boundary line M & A ; A deals- TATA Corus acquisition and TATA JLR acquisition. The principle to take these two M & A ; A trades was that both geting houses are portion of TATA pudding stone. Based upon these trades and general facets, we eventually arrived a decision for cross boundary line M & A ; A.

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Advantages that a company have in traveling abroad

We went through assorted literatures to seek the advantages that the steadfast gets on traveling abroad, we begin with analyzing the surveies already done on this facet. First we will sum of the major theories of motivations for a house traveling abroad.

Managerial motivation[ 1 ]: The managerial motor suggests that directors of geting steadfast embark on acquisitions to maximise their ain public-service corporation at the disbursal of stockholders of the house.

Synergy hypothesis[ 2 ]: The synergy hypothesis proposes that acquisitions take topographic point when the value of combined house is greater than the amount of the values of single house.

Intangible assets: Penrose described the house as a aggregation of productive assets and proposed that the long tally profitableness of the house is closely associated with the growing in productive chance of the house i.e. the chance to utilize its touchable and intangible assets more expeditiously.

Reverse internationalisation[ 3 ]: Firms get accomplishments and resources from cross boundary line acquisitions that are expected to be valuable in their place markets. In this instance, the experts of the mark house, when combined with that of the command house, leads to valuable new production-investment chances of the combined house.

Based on literature surveies and our observations we prepare a theoretical account which explicitly highlights the major factors which motivates a house to travel abroad for M & A ; A. Besides this theoretical account highlights the major positive effects, which has been observed in successful M & A ; As.


Growth[ 4 ]: The major ground for which a house decides to travel abroad is enlargement. The houses want to spread out either in different state by offering similar merchandises and service ( homogeneous enlargement ) or by supplying different merchandises and services depending on civilization and market environment in the foreign state. A subset of grounds for growing are as follows:

Growth in place market is limited: The major grounds which emphasis this points are:

Presence of many rivals in place market.

Impregnation of place market because of no farther development of merchandise, or product/service is in mature phase of merchandise life rhythm i.e. no new chances for invention in merchandise or services, that can be offered by any house.

Growth is restricted because of trade barriers: Trade barriers could be in signifier of duties, import responsibility, quotas or prohibitions. It has been observed that trade barrier impacts less on states which has larger economic systems compared to companies which has little economic systems. Reason is states with big economic systems depend less on trade and are less affected by foreign competition.

Resources: Many houses go international to turn up resources because of the undermentioned grounds:

High cost of resources in place market: Labor at a high cost is available in developed states, and therefore services there are available at higher costs. The grounds could be low handiness of skilled labors.

Low cost of resources in other states: Labor at a better monetary value is easy available in states whose economic system grows at a faster gait like China and India. The grounds for this are:

Huge handiness of skilled labor

Low occupation chance for these semi-skilled and skilled labors in these states.

To broaden the work force

High cost of production: In some sectors where mass production and economic systems of graduated table is hard to accomplish, there is a high cost of production. There could be assorted grounds like:

High cost of natural stuffs

High processing cost

High cost of packaging or transit cost.

Diversification: Firms besides go for diverseness in concern. There are assorted grounds and therefore sorts of diverseness which a house goes for:

Diversity as a portion of corporate strategy- This sort of M & A ; A is taken up by a house which is a portion of a diverse group i.e. within a concern group. It is non necessary that diverseness of a group can merely be achieved by get downing up a house in place state, but besides because of grounds stated in above points, diverts a company to travel for M & A ; A is a foreign state.

Diversification as a portion of selling scheme[ 5 ]– It seeks to increase profitableness through greater gross revenues volume obtained from new merchandises and new markets. Diversification can happen either at the concern unit degree or at the corporate degree. At the concern unit degree, it is most likely to spread out into a new section of an industry that the concern is already in. At the corporate degree, come ining a promising concern outside of the range of the bing concern unit. Besides, Selling merchandises and services in multiple states reduces the company ‘s exposure to possible economic and political instability in a individual state. Diversification is portion of the four chief growing schemes defined by the Product/Market Ansoff matrix:


Synergy[ 6 ]– Synergy in M & A ; As due to the undermentioned grounds:

Economies of scale- Economies of graduated table are factors that cause the mean cost of bring forthing something to fall as the volume of its end product additions. It can besides be seen as a bigger company puting the orders can salvage more on costs. M & A ; As translate into improved buying power to purchase equipment or office supplies – when puting larger orders, companies have a greater ability to negociate monetary values with their providers. Another illustration for economic systems in graduated table is realized by the fact that it is easier for big houses to transport the operating expenses of sophisticated research and development ( R & A ; D ) .

Geting new engineering – To remain competitory, companies need to remain on top of technological developments and their concern applications. By purchasing or unifying with a smaller company with alone engineerings, a big company can keep or develop a competitory border.

Economies of scope- It refers to take downing mean cost for a house in bring forthing two or more merchandises. Example of obtaining economic systems of range can besides be seen as if a house manufactures a merchandise based on common, perennial or proprietary method or even based on single physical plus ; the figure of people that can be reached reduces, with decrease in advertisement outgo and other such outgos which are non straight related to fixed production and operational costs.

Value creation- Value creative activity in houses does n’t needfully happens merely in footings of currency but besides in footings of following facets.

Combined wealth gain- Diversification as a ground for houses to travel for cross boundary line M & A ; A, leads to make stockholder value. These benefits arise from the reduced variableness in the house ‘s gaining ensuing from less than perfect correlativity between gaining in different markets.[ 7 ]

New thoughts and opportunities- Companies go international to obtain new thoughts. A work force comprised of different backgrounds and cultural differences can convey fresh thoughts and constructs to assist a company grow.

Skills & A ; Resources-In M & A ; A ‘s houses are able to get the intangible resources of a house, which farther leads to development and invention in merchandises and procedures.

Market power- Through M & A ; A ‘s a house is easy able to perforate market in foreign states, which can non be easy done if the company chose single path. This is merely because of presence of barriers like political, societal, cultural, economic and technological. Addition in market power leads to following consequences:

Increased client base-World scale homogenisation of consumer penchant things such as western manner frocks, consumer goods, and amusement leads to increase consumer in different states to demand and prefer similar constituents, which once more leads house to profit by traveling abroad for M & A ; A.

Increased gross revenues & A ; Revenue[ 8 ]– Companies buy or merge with companies to make new markets and turn grosss and net incomes. A merge may spread out two companies ‘ selling and distribution, giving them new gross revenues chances. A amalgamation can besides better a company ‘s standing in the investing community: bigger houses frequently have an easier clip raising capital than smaller 1s.

Investing chances[ 9 ]– The theory of foreign direct investing assumes that, in general, clashs in capital, goods, or market factors in other states create chance for houses in one state to profit by puting in other. Absolutely competitory markets will supply no inducement for houses in one state to relocate and bring forth in other state as free motions of goods and factors of production among states will guarantee that supply meets demand in each state and monetary values are equalized.

Factors impacting Cross Border M & A ; A

Assorted factors affect the house ‘s determination to make up one’s mind for M & A ; A. These factors includes- Political, Cultural, Legal, Financial, Technical, etc. In this paper, we have analysed three facets

Political facet

Fiscal facet

Cultural facet

Due diligence

Political facet

Political influences in the cross-border amalgamation and acquisitions was really less analyzed in past as it was non considered to be a major factor in these trades but presents, the landscape has changed. Previously, companies from the developed universe would travel and get any company in developing universe. With ever-increasing demand of capital and investing to boom the economic system, these trades were seen as conveying money and expertness to these emerging economic systems. But with the western universe economic systems maturating and Asiatic states taking growing engine of universe economic system, these political obstructions has become more relevant to analyze.

Companies from emerging economic systems like China, India and Brazil etc. are traveling off-shore and doing brawny M & A ; A trades in Europe, USA and other comfortable states like Australia. This is actively impacting political relations in these affluent states. Loss of occupations every bit good as loss of pride by their growing bring forthing companies being acquired by alleged “ 3rd universe states ” has polarized the society and political relations in these states. Proving Newton ‘s 3rd jurisprudence, these states are seeking to construct protectionist policies to change by reversal this tendency. These policies may be unreal prohibitions on FDI, make up one’s minding a maximal cap on the degree of investing and seting duties etc. to do the investing expensive. Recent history of past 2 decennaries has shown that the authoritiess are progressively acute to protect their national icons.

Most of the protectionist instances are emerging in agribusiness commodity-related sectors, natural resources and defense mechanism companies. In a free market economic system, by and large authorities does non come in the manner of foreign acquirers. But as the trades are acquiring bigger and bigger, they are pulling more public attending and political examination. In some sectors like banking, this hazard of overregulation has increased after planetary economic lag. Governments had spent a batch of taxpayer ‘s money to protect some of these ailing companies supposed to be national pride. Now, when these companies are being acquired or merged by foreign participants, authorities has come under scanner to blow money from public treasury to salvage companies which are anyways, being handed over to foreign custodies. This has prompted authoritiess to step in in these trades merely to protect their authorization in the democratic apparatus. Harmonizing to J.P. Morgan ‘s caput of investing banking for Asia Pacific “ Regulatory issues and autonomous concerns are a natural portion of big cross-border minutess and wo n’t travel off. As companies engage in such minutess, they will of course pull more attending from stockholders and regulators likewise. ”[ 10 ]

We can take a instance of M & A ; A trade which did non happen to understand the impact of political influence over such trades. The instance was failed effort of a China ‘s State-owned endeavor China National Offshore Oil Corporation Limited ( CNOOC ) to get Unocal ( a United states based oil and gas geographic expedition house ) in 2005. U.S. Congress challenged this acquisition. This challenge puts a political barrier for any foreign house to get U.S. oil companies. This barrier created by Congress resulted in significant diminution in the market value of U.S. oil companies. At last, CNOOC had to go forth the trade with heavy losingss in footings of clip and money.[ 11 ]

Fiscal facet

Motivation of houses for M & A ; A is either value maximization or imperium edifice[ 12 ]. Geting house wants to obtain greater liquidness and variegation in operations. Inefficient houses ( in footings of profitableness, liquidness, solvency, growing, dividend payout, monetary value net incomes ratio and purchase or rating ratios ) are more likely to be acquired[ 13 ]. The findings derived for the period 1950 and 1960 show that the acquired houses tend to be comparatively unprofitable, excessively liquid, and by and large sulky. CAMEL is a widely used acronym that should be examined while measuring a fiscal house ‘s soundness and safety. It is based on five important necessities of a fiscal entity-capital adequateness, plus quality, direction, net incomes and liquidness. Acquiring houses perform better than acquired houses on these indexs.

Mode of FDI entry: In developing states, cross boundary line M & A ; A is the chief manner of FDI entry. FDI flows are strongly correlated with the value of cross-border M & A ; A minutess[ 14 ]. Thus the lessening in entire cross-border M & A ; A has had a important impact on FDI flows.

Post-merger effects: From the research done by Dr. Neena Sinha[ 15 ]on 491 companies based on three twelvemonth fiscal public presentation, it is shown that

Net incomes available to stockholders and debt to equity ratio showed a important alteration in pre and station amalgamation fiscal place of the companies.

Change in the return on net worth, liquidness place and net income before revenue enhancement to entire income of the companies to be non statistically important.

In most of the M & A ; A instances, in the long tally the geting houses were able to bring forth value creative activity in one or the other signifier, that is higher hard currency flows, cost film editing and greater market power

However, houses show increased debt to equity ratio.

Cultural facet

Cultural integrating in amalgamations and acquisitions is one of the biggest challenges that such endeavours face. It ‘s a force powerful plenty to do the acquisition a failure. Harmonizing to one survey, civilization is the cause of 30 % of the failures in M & A ; As.[ 16 ]

What is civilization? – Long standing, mostly inexplicit shared values, beliefs and premises that influence behavior, attitudes and significance in a company.

Due diligence[ 17 ]

Due diligence is a procedure of look intoing the inside informations of a possible investing and it is normally done by investors. This probe includes assorted things like scrutiny of operation and direction and verifying the facts of the investing. Due diligence is really of import as this is critical to look into for hazards and benefits involved in any trade and it ca n’t be ignored, neglected or avoided at any cost. But this procedure has a hazard of information being leaked out among its ain employees and the mark company ‘s employees. By and large, the lone manner to cover with any leak out of information is to utilize some little dealing squads and so covering their activities with a plausible ground or a justifiable cause.

In general, there are three chief countries of due diligence: commercial, legal and rational belongings. All these countries are elaborately related to each other, but each one has some particular issues which are of peculiar importance.

Commercial due diligence: it is mostly related to set uping a clear image of ongoing concern of the mark. Areas of involvement in this due diligence type are fiscal records and gross projections, net income and loss history, hard currency flows, list of assets and liabilities, analysis of mark ‘s clients, reappraisal of provider understandings and buying patterns, reappraisal of bank histories and revenue enhancement records. All these things try to happen out the existent fiscal status of the mark by acquiring information about stock list obsolescence, fixed cost, R & A ; D disbursals, off-balance sheet liabilities, uncollectable histories receivables and revenue enhancement eventualities.

Legal due diligence: it is focused on regulative issues, ongoing cases and unusual or burdensome contract commissariats. Areas concerned are filings with local ; province and federal regulative organic structures, correspondence with lawyers ; proceedingss from board meetings ; stockholders understandings, client contracts and debt understandings. Cardinal considerations include the constitutions of clear rubric to assets, obtaining a clear position of possible employee-related affairs and covering possible environmental liabilities.

Intellectual belongings due diligence: this is concentrated on set uping what right the company may hold in assorted rational belongings and where it might trust on the rational belongings of another entity. Typical countries of involvement are patents, right of first publications and hallmark filings, description of company ‘s IP protection procedures and licencing understandings. The chief consideration is set uping the ownership rights that the mark holds in a given piece of IP. Patents, right of first publications and trade secrets tend to be the most of import types of rational belongings.

TATA Corus Deal

Tata Steel Profile[ 18 ]

Tata Steel is portion of the Tata Group, India ‘s largest industrial pudding stone. Established in 1907, it is among the top 10 planetary steel companies with major production installations in India, UK, Netherlands, Thailand and Singapore. It is now one of the universe ‘s most geographically-diversified steel manufacturers, with operations in 26 states and a commercial presence in over 50 states. As of now, runing companies within the Group include Tata Steel Limited ( India ) , Tata Steel Europe Limited ( once Corus ) , NatSteel, and Tata Steel Thailand ( once Millennium Steel ) The Tata Steel Group, with a turnover of US $ 22.8 billion in FY ’10, has over 80,000 employees across five continents and is a Fortune 500 company. The purpose of Tata Steel is to go a universe leader in low cost and high quality steel merchandises.

Corus Profile[ 19 ]

On 6 October 1999 British Steel merged withA Koninklijke HoogovensA to formA Corus Group. It became the universe ‘s third-largest manufacturer of steel. British Steel formed about two-thirds of the merged group. Corus is a prima European maker for steel and aluminum merchandises. Corus is four times every bit big as Tata Steel. It has major integrated steel workss at assorted locations in United Kingdom and Netherlands. It besides has turn overing Millss and tubing Millss situated at assorted parts in Europe. Corus Group turnover for the twelvemonth to 31 December 2005 was ?10.142 billion. Net incomes were ?580 million before revenue enhancement and ?451 million after revenue enhancement.

Background of the trade

In October 2006, Tata ‘s uttered involvement in geting Corus

Tata ‘s command for Corus @ 455 pence a portion ; entire value $ 7.6 billion ; Corus Board approved Tata ‘s command

In November 2006, Brazilian steel shaper CSN made a antagonistic command @ 475 pence a portion

Finally in January 2007, an auction procedure was started

At the terminal of the auction procedure, Tata Steel announced acquisition of Corus at 608 pence a portion ; 5 pence more than CSN ‘s value of 603 pence a portion

Rationale for the trade

From Tata Steel ‘s side

Corus had a strong presence in the European market and therefore the trade would assist Tata Steel addition entry into Europe

It would let Tata Steel entree to Patents and R & A ; D installation of Corus

The synergism would assist in accomplishing economic systems of graduated table, move will assist Tata ‘s to have among top 10 steelworkers of the universe

Besides the trade would take to a diversified merchandise mix for the Tatas

If Tata were to make from scratch 19 million dozenss of steelmaking capacity comparable in quality to what Corus possesses it would hold ended up puting 70-85 % more than it had paid.Also a Greenfield venture involves a batch of legal, proficient, environmental clearances and issues

From Corus side

European market was already saturated, the trade would take to expanded planetary range for Corus

Corus had a high cost of production and therefore through this trade Corus can besides entree to Tata ‘s low cost fabrication installations

It can besides derive entree to raw stuff at lower cost

It besides had shriveling net incomes and this trade would let it to accomplish lower costs and economic systems of graduated table

Financial Details

Deal Facts

Acquisition day of the month: April 2007

Deal Value: US $ 12.11 Billion

Initial Bid:455 pence per portion when stock monetary value was 390 pence per portion

Final Bid Price:608 pence per portion

How TATA raise financess

A keeping company was set up in Singapore to fund the Corus acquisition. This company will put money in Tata Steel U.K the keeping company for Corus acquisition.

The long term funding form for the net acquisition consideration of Corus was $ 12.9 billion and Tata Steel UK was funded in the long term from the undermentioned beginnings:

Equity capital from Tata Steel- $ 4.10 billion

Long-run debt from pool of Bankss $ 6.14 billion

Quasi-equity support at Tata Steel Asia Singapore $ 1.25 billion

Long-run capital support at Tata Steel Asia Singapore 1.41 billion

Entire $ 12.90 billion.

Key fiscal values ( Before and after the trade )

a ) D/E Ratio

For TATA steel, D/E ratio was ever & lt ; 1 ; doing Equity greater than Debt. However D/E ratio increased after acquisition procedure started and became highest in Jan-08. After that D/E ratio is diminishing due to increased net incomes from acquired entity and payback of loans.

B ) Higher hard currency flow


Decrease in ROCE started in FY-04 and it was non able to increase even after station acquisition. The chief ground is immense capital and debt maintaining the ROCE down. On the other manus, station acquisition, existent gross surpassed the projected gross and net income is increasing. But this ca n’t be said whether it is due to Corus works or TATA Steel ain works.

degree Celsius ) Value Maximization

Post amalgamation there is steep addition in TATA Steel ‘s assets. This is due to 100 % interest acquired in Corus. But in the same manner, liability besides became dual after acquisition doing a immense force per unit area on company to refund its debt.

vitamin D ) Market position

In India, it is common that after acquisition, geting steadfast enjoys crisp addition in price-to-earning ( P/E ) ratio. This is because, in India variegation is perceived as good by investors and their outlooks from company stocks increases, even though presently they are non gaining existent returns on their stock. But TATA Corus trade was non able to keep true on the above fact. There is crisp decrease in P/E ratio. The graph is immense zigzag demoing immense uncertainness in the market about the trade.

Price-to book value ( P/BV ) is tantamount to Tobin ‘s Q in macroeconomic footings. Post amalgamation, decrease in P/BV ratio signifies that market value of acquired plus is less than recorded value. One of the possible grounds for decrease in P/BV value is non able to derive from the synergisms gained during acquisition. Decrease in P/BV ratio is true index that acquisition is non so good and geting house is will non be able addition just return for acquired entity in the short run..

Cultural Issues with the trade

TATA followed the light method of integrating. It retained the top direction of Corus and formed the integrating and undertaking forces with equal representation from both Tata and Corus. Cross cultural communicating preparation was organized for Corus employees to understand Indian civilization. Tata ‘s besides leveraged on their similarities. Both for illustration had uninterrupted betterment plans viz. ASPIRE and The Corus way.Corus besides sought the aid of civilization and communications consultancy Communised to present a series of cultural consciousness programmes on making concern with India. It focused on making concern with India. A Strategy and Integration Committee was constituted that is chaired by the Group Chairman. This commission footing reviewed advancement on the scheme and integrating route map, to guarantee that cardinal mileposts were being met.

Synergies from the trade

This trade made Tatas the 6th largest steelworker globally. The trade would let Tatas to hold a important presence in both emerging and developed economic systems. Tatas have a important presence in Asia while Corus has a presence in Europe. The trade would assist the incorporate entity to derive entree to both the markets. The combined entity besides has a strong presence in building, automotive and boxing market sectors. Tata Steel has extremely efficient upstream operations while Corus has value-added downstream merchandises. The combined entity would acquire entree to both. The combined entity would besides acquire benefit of Corus ‘s presence in R & A ; D and engineering.

Did Tata overpay for Corus acquisition

After the trade of Corus acquisition was finalized, Tata steel faced a dip in its portion monetary values. Investors believed that the trade had left Tata with a high load of debt. In an effort to seize the trade, Tata paid more than the existent worth of Corus, harmonizing to investors. This occurred because of competition with the Brazilian house which was besides seeking to get Corus. It is estimated that Tata paid 20 % more than the existent worth.[ 20 ]

But the company does non believe that it has overpaid. Before the trade, it was a periphery participant with 56th rank in the universe on the footing of volume of steel production. After the trade, it became 5th largest steel manufacturer with a capacity of 24 MPTA. The trade gave Tata an entree to the mature markets of Europe and a planetary acknowledgment. Apart from that, it gained the top of R & A ; D capacities of Corus. Corus has strong trade name trueness and good distribution web in Europe. Corus, with one-year grosss of 9 billion lbs, has multi-location installations and has a world-wide work force of 41,100 employees. A Constructing a Greenfield works could hold taken Tata up to 5 old ages and the investing could hold been higher. The steel industry has a promising hereafter as monetary values are turning by 5 % twelvemonth by twelvemonth and this growing is supposed to be sustained. It should be noted that the debt taken for this trade is traveling to be serviced by the net income borders of Corus, therefore it will hold really less impact on Tata Steel ‘s long term public presentation. And the most of import thing for traveling for the trade was the menace of consolidation by the industry. If Tata would non travel for this trade, it could hold been acquired by bigger participants in the industry and this could ache the really being of Tata Steel.[ 21 ]

Post acquisition impact

Ever since the acquisition, the UK steel production has fallen. Indian operations of Tata Steel produce less than half of the steel as compared to European operations. But they have still accounted for more than 50 % of the company ‘s entire net incomes. Though the Gross debt has moved up for Indian operations, the amalgamate D/E ratio has moderated as compared to FY 08. In FY10, Indian operations reported a net income of Rs 5,000crore whereas European operations reported losingss of Rs 2,000 crore. Between FY08 and FY11, adjusted net net incomes slipped from Rs 7,359 crore to Rs 6,560 crore. The basic job in this acquisition is that the European operation has been unable to go through on high raw-material costs to stop consumer due to weak demand. To turn to this state of affairs, Tata Steel has purchased Fe ore and coking mines in Canada, Africa and Australia. It is besides selling unprofitable operations and other assets. Tata Steel ‘s domestic militias will merely assist fund its acquisition programs. Europe is traveling to be a ambitious market. Indian operations will hold to drive up growing. Besides investors in the Tata Steel stock have fared every bit good as the Sensex in the last four old ages. The stock has gained 21 per cent absolute addition since February 2007.

TATA-JLR trade

Tata Motors Profile

Tata Motors Limited is India ‘s largest car company, with amalgamate grosss of INR 1, 65,654 crores ( USD 32.5 billion ) in 2011-12. It is the leader in commercial vehicles in each section, and among the top three in rider vehicles with winning merchandises in the compact, midsize auto and public-service corporation vehicle sections. It is the universe ‘s 4th largest truck and coach maker[ 22 ].

Established in 1945, the company ‘s fabrication base in India is dispersed across Jamshedpur ( Jharkhand ) , Pune ( Maharashtra ) , Lucknow ( Uttar Pradesh ) , Pantnagar ( Uttarakhand ) , Sanand ( Gujarat ) and Dharwad ( Karnataka ) . Through subordinates and associate companies, Tata Motors has operation installations in the UK, South Korea, Thailand, Spain and South Africa[ 23 ]. Some of its acquisitions and Joint ventures are as follows-



Kind of association

Reason of association


Daimler Benz AG, West Germany

Joint venture

To fabricate average commercial vehicles.



Telcon Construction Equipment co. ltd.

Technical coaction

Joint Venture

To acquire entree to engineering for fabrication of hydraulic excavators


Cummins Engine Co. Inc.

Joint venture

For the industry of high HP and emanation friendly diesel engines.


Daewoo Commercial Vehicle Company, South Korea


Company ‘s planetary programs to cut down domestic exposure and to spread out the merchandise portfolio


Tata MarcoPolo Motors Ltd ( TMML )

Joint Venture

To fabricate fully-built coachs and managers for India and choice international markets.


Fiat India Automobiles

Joint Venture

To derive entree to Fiat ‘s Diesel engine engineering


Tata Hispano Motors Carrocera S. A.


To construct to the full built coach section,

Jaguar and Land Rover Profiles

Jaguar Cars Ltd was a British luxury and athleticss auto maker, headquartered in Whitley, Coventry, England. Jaguar autos today are designed in Jaguar Land Rover ‘s technology Centres at the Whitley works in Coventry and at their Gaydon site in Warwickshire, and are manufactured in Jaguar ‘s Castle Bromwich assembly works near Birmingham[ 24 ].

Jaguar was started as the Swallow Sidecar Company in 1922, originally doing bike sidecars before developing rider autos.

Jaguar merged with the British Motor Corporation ( BMC ) , to organize British Motor Holdings ( BMH ) in 1966. After fusion with Leyland, which had already taken over Rover and Standard Triumph, the subsequent company so became the British Leyland Motor Corporation ( BLMC ) in 1968. Fiscal problems led to effectual nationalization in 1975 and the company became British Leyland, Ltd ( subsequently merely BL plc. )[ 25 ].

In the 1970s, the Jaguar and Daimler trade names formed portion of BL ‘s specializer auto division or Jaguar Rover Triumph Ltd until reorganisation happened in the early 1980s, which saw most of the BL volume auto fabrication side going the Austin Rover Group, which did n’t include Jaguar.

In 1984, Jaguar was drifted off as a separate company on the stock[ 26 ].

In 1999 it became portion of Ford ‘s new Premier Automotive Group along with Aston Martin, Volvo Cars and, from 2000, Land Rover.

Ford purchased Land Rover in May 2000, after that it has been closely associated with Jaguar. In many states Jaguar and Land Rover have shared gross revenues and distribution web. However operationally the two companies were efficaciously combined under a common direction construction.

Land Rover was a British auto maker with its central offices in Gaydon, Warwickshire, United Kingdom which focuses in four-wheel-drive vehicles. It is the 2nd oldest four-wheel-drive auto trade name in the universe ( after Jeep ) .[ 27 ]Over the old ages it developed into a trade name including a scope of four-wheel-drive theoretical accounts, including the Defender, Discovery, Freelander, Range Rover, Range Rover Sport and Range Rover Evoque. Land Rovers are presently assembled in the company ‘s Halewood and Solihull workss, with research and development taking topographic point at JLR ‘s Gaydon and Whitley technology Centres. Land Rover sold 194,000 vehicles worldwide in 2009.[ 28 ]

Though the trade name coins from the original 1947 theoretical account, Land Rover as a company has merely existed since 1978, prior to this it was a merchandise line of the Rover Company which was so engaged into the Rover-Triumph division of the British Leyland Motor Corporation ( BL ) following Leyland Motor Corporation ‘s purchase of Rover in 1967.

The success of the original Land Rover series theoretical accounts, and subsequently on the Range Rover in the 1970s in the center of BL ‘s good documented concern problems encouraged the constitution of a separate Land Rover company but still under the BL umbrella, staying portion of the subsequent Rover Group in 1988 under the ownership of British Aerospace after the remains of British Leyland were broken up and privatised.

In 1994 Rover Group plc. was so acquired by BMW.

In 2000 Rover Group was divided by BMW and Land Rover was sold to Ford Motor Company, going portion of its Premier Automotive Group.

Rational for the trade

From Ford ‘s side

Ford was in the center of a painful period, detaching dearly-won units and workers in the United States.

For Ford, the move sheds two European luxury trade names that had become a retarding force on hard currency. Particularly challenging was Jaguar, into which Ford sank about $ 10 billion seeking to resuscitate the trade name after passing $ 2.5 billion to purchase it in a trade that closed in 1990[ 29 ].

Land Rover was thought to do a net income, but Jaguar had been lossmaking for old ages. The two trade names had been a immense fiscal drain on Ford. It lost $ 15 billion from 2006-2008.

Ford wanted to concentrate on incorporating Ford trade name globally instead than giving less attending to Jaguar, Land Rover and Volvo trade name. They wanted to turn around the company by refocusing the car manufacturer on its nucleus trade names.

Ford besides needed hard currency. They lost $ 2.7 billion in 2007 and posted a $ 12.7 billion loss for 2006.[ 30 ].

From Tata Motors side

It was an chance to fall in in two fast turning car sectors.

Increase concern diverseness across market and merchandise

LR provide a natural tantrum for TML ‘s SUV section

While Jaguar had a assorted repute, both were still good historic trade names. Ford had propelled in a great trade of hard currency to better quality and it was merely a affair of clip before this made a difference.

JLR had really good car workss. Thus it was an chance to spread out its presence in the planetary markets for which foreign participant have formed local confederations.

There was a staunchness of the traders despite losingss over the past four-five old ages.

Jaguar offered a scope of Luxury vehicles to broaden the trade name portfolio. Jaguar autos had already started traveling up the rankings. Besides that, there a line of upcoming great new theoretical accounts[ 31 ].

JLR had a good technology base and a passionate and committed group of people desiring to make new merchandises[ 32 ].

Tangible and Intangible assets

100 % interest in Jaguar and LR concern with most of import intangible asset- the two historic trade names.

Contribution of $ 600M by Ford to JLR pension program

Get entree to Ford ‘s intercrossed and low emanation powertrain engineering

Two advanced design centres in the UK and fabrication workss.

A world-wide web of 26 national gross revenues companies.

IPR of all engineerings transfer to JLR and ageless royalty free licence on engineering shared with Ford.

Ford ‘s recognition continue to back up gross revenues of JLR for following 12 months

Transactional inside informations

As portion of the dealing trade, Ford signed up to go on to provide Jaguar Land Rover for differing periods with powertrains, stampings and other vehicle constituents, in add-on to a scope of engineerings, such as environmental and platform engineerings.

Ford had to supply technology support, including research and development support, information engineering, accounting and other services. In add-on, Ford Motor Credit Company provided funding for Jaguar and Land Rover traders and clients during a transitional period, which varied by market, of up to 12 months.

The purchase monetary value was more than the market expected but still about half what Ford originally paid for the trade names several old ages ago. Tata motors had to pay $ 2.3 billion for the two trade names that cost Ford $ 5.3 billion.

The trade compelled Ford to pay about $ 600 million into the Jaguar-Land Rover pension fund on shutting, so Ford will sack merely approximately $ 1.7 billion[ 33 ]

Background of the trade

Bidding procedure

Private equity houses such as Alchemy Partners of the UK, TPG Capital, Ripple wood Retentions, Cerberus Capital Management and One Equity Partners of the US, Tata Motors of India and a pool consisting Mahindra and Mahindra and Apollo Management wholly ab initio expressed involvement in buying the trade names from the Ford Motor Company.

Before the sale was announced, Anthony Bamford, president of British excavator maker JCB had expressed involvement in buying the company in August 2006, but backed out upon larning that the sale would besides affect Land Rover, which he did non wish to purchase. During the command procedure, India ‘s car giant M & A ; M and TML was top bidders. On Christmas Eve of 2007, Mahindra and Mahindra backed out of the race for both trade names, mentioning complexnesss in the trade[ 34 ].

Finally TML was top bidder and so Ford announced to sell JLR unit to it at offering monetary value of $ 2.3B. The whole acquisition procedure closed in June, 2008 and JLR became the portion of TML. Thus TML got 100 % interest in JLR for US $ 2.3B on cash-free debt-free footing.[ 35 ]

How TML raised financess

TML raise $ 3B through span loans for 15 months from a clasp of Bankss including JP Morgan, Citibank and SBI. Initially recognition evaluation companies took a negative mentality towards this trade due to immense debt demand in the fiscal crisis clip.

After finalisation of trade, TML used multiple fiscal beginnings including ordinary equity portion ( 2200 crore ) , Nonconvertible unsecured bonds from Indian fiscal establishments ( 4200 crore ) and staying through exchangeable penchant portions.

Key fiscal values ( Before and after the trade )

a ) D/E ratio:

There is much fluctuation in D/E ratio before and after the acquisition. Before FY-08 ( amalgamation was finalized in Jun, 2008 ) D/E ratio was & lt ; 0.8 ; meaning Debt was less than Equity. But after the acquisition, D/E ratio increased and became & gt ; 1 till FY-10. It was due to debt taken by TML for acquisition. After that D/E ratio is diminishing due to increased net incomes from acquired entity and payback of loans.

B ) Higher hard currency flow:


Although station acquisition there is a small decrease in ROCE, but this consequence was temporarily. After FY-09, ROCE began to increase. But till now, it has non reached earlier degree of 30 % . The chief ground is immense capital and debt maintaining the ROCE down. On the other manus, station acquisition, existent gross surpassed the projected gross and net income is increasing. So we can state that trade fulfilled the outlook of company and provided immense hard currency influx.

degree Celsius ) Value maximization:

Post amalgamation there is steep addition in TML ‘s assets. This is due to 100 % interest acquired in JLR. Due to external debt, liability besides increased but this was impermanent and after FY-10, it is coming down. Therefore steadfast addition high plus increase station amalgamation.

vitamin D ) Market position:

In India, it is common that after acquisition, geting steadfast enjoys crisp addition in price-to-earning ( P/E ) ratio. This is because, in India variegation is perceived as good by investors and their outlooks from company stocks increases, even though presently they are non gaining existent returns on their stock. Traveling through same way, TATA Motors besides gain steep addition in its P/E ratio.

Price-to book value ( P/BV ) is tantamount to Tobin ‘s Q in macroeconomic footings. Post amalgamation, increase is P/BV ratio signifies that market value of acquired plus is greater than recorded value. One of the possible grounds for increase in P/BV value is synergisms gained during acquisition. Increment in P/BV ratio is true index that acquisition is successful and geting house is able to derive just return for acquired entity.

Synergies from the trade

The synergisms that Tata motors will accomplish can be loosely divided into 5 categories-

Supply concatenation synergies- As portion of trade, TML ( Tata Motors Limited ) besides got 26 national gross revenues companies in the UK and a huge trader web in the United states[ 36 ], UK and remainder of Europe. This will enable TML spread out their planetary supply concatenation for other merchandises excessively. On the flipside, TML ‘s huge trader web in South and south-east Asia will assist JLR spread out its planetary footmark.

Geographic Synergies- Most of JLR ‘s gross comes from US ( 30 % of volumes ) and Western Europe ( 55 % of volumes ) . TML ‘s expertness and resources, every bit far as other parts are concerned, can assist JLR in diversifying its gross resources, cut downing dependance on twosome of geographic countries, hence cut downing hazard. The opposite is true for TML, with most of its gross coming from India and some from South East Asia.

R & A ; D synergies- JLR has significantly more technological expertness than TML in research and development. They besides have the substructure to carry on R & A ; D, for illustration the two advanced design and technology Centres that TML got as portion of the trade. This will assist TML in non merely get the better ofing the technological challenges it faces ( like the noise and quiver job in Indica or maintaining up with of all time stricter emanation criterions ) , but it will besides enable them to develop merchandises that can dispute planetary car fabrication giants. Along with that, it will assist them develop engineerings that help them recognize their ain schemes. For illustration, TML is now working on an engine that will be fit for both their Indian offerings and EU offerings.

Cost synergies- Material costs are a really large ball of entire costs of car fabrication. Reducing them is a important portion of cost film editing. Corus steel, which is besides owned by Tata, has been a provider of steel worldwide and Tata steel itself is one of the universe ‘s most cost effectual steel manufacturers. Geting stuff from them will cut down costs of fabrication.

Cross-subsidiary synergies- Tata Consultancy Services ( TCS ) , Corus and Tata engineerings all have some expertness in relation to car fabrication industries. TCS has been confer withing car giants like Chrysler, Ferrari and Hyundai. Corus has been a provider for long in car industry. Similarly, Tata engineerings have expertness in technology and design of assorted car constituents.

The cumulative expertness of all these subordinates can ensue in important synergisms and cost economy.

Cultural factors

While TML ( Tata Motors Limited ) did n’t confront unsurmountable cultural jobs while incorporating JLR, they however faced some jobs.

Fear of negative trade name perceptual experience in dealers- Jaguar traders in US was ab initio discerning about the impact of the acquisition of a premium trade name by an Indian company. They were of the sentiment that the acquisition would ‘cast uncertainty over the viability of the trade name.[ 37 ]

Employee apprehensivenesss and passage problems- The employee needed to be assuaged because of the frights that the passage might take to occupation losingss or alteration in other footings of battle. They were satisfied when TML promised that there would be no alteration in any footings of employment and when Ford agreed to lend $ 600 million in the pension fund.[ 38 ]It was besides ensured that the on-going production programs would non be affected during the passage period.

Long term programs and trade name identity- Bing a luxury trade name ( Jaguar ) and a trade name equivalent word with quality ( Land rover ) , both of these trade names have had a particular individuality in the heads of the consumers and a proud association for employees. This raised frights that the JLR unit might be to the full absorbed into TML and will no longer stay a separate unit and maintain its individuality. TML calmed these frights by stating that they will back up JLR concern program, including market & A ; fabrication programs and concern marks. They said that they recognized that the two planetary trade names needed to maintain their individuality, design and proficient independency[ 39 ]

Post-Acquisition Impact

Soon after the acquisition in 2008, Tata Motors found itself burdened with a debt of Rs. 21,900 crore, a painful state of affairs for a company that had been virtually debt free. It was combined with the job of planetary lag of economic system and separation of JLR direction from one organisation to the other. Tata Motors was in pressing demand of money, and Bankss were non able to give them. In the fiscal ended March 2009, Tata Motors posted its first one-year loss in at least seven old ages after gross revenues at the luxury units plunged amid the planetary slack. The amalgamate net loss was Rs. 2,500 crore in the twelvemonth ended 31 March, compared with net income of Rs. 2,200 crore in the twelvemonth earlier. The JLR unit made a pre-tax loss of Rs. 1,800 crore as unemployment and the fiscal crisis damped gross revenues in the US and Europe[ 40 ].

Hence they followed a “ Three grade theoretical account ” with the aim of “ Making JLR profitable ”

Tier-1: Their short term end was to keep liquidness. Tata Motors besides embarked on a program to deprive bets in group companies to raise hard currency: In September 2008, it sold a 1.3 % keeping in Tata Steel Ltd to keeping company Tata Sons Ltd for a entire Rs. 485 crore. In November 2008, the board approved a Rs. 4,147 crore rights offer, which was completed in June this twelvemonth. All returns were directed into Tata Motors to do JLR profitable[ 41 ].

Tier -2: Mid-term mark was to cut down costs and formation of 10-11 members Cross Functional squad with a figure of direction alterations, including new caputs at JLR. The programme besides saw the work force being cut-down by around 11,000 from a immense work force of 27,000 at JLR[ 42 ].

Tier-3: A long-run end that runs until 2014 was drawn up, concentrating on new theoretical accounts and elating the bing 1s.

The acceptance of this theoretical account lead to the undermentioned consequences:

In the first 10 months after the coup d’etat the Birmingham-based luxury auto shaper noted ?280m losingss. But JLR ‘s net income came in at ?221m – a important betterment from last twelvemonth ‘s ?64m[ 43 ].

The parent group reported net net incomes of 19.9bn rupees ( ?272m ) for the three months to the terminal of June, 2010 compared with a loss of 3.3bn rupees in the same period last twelvemonth. Grosss shot up by 64 % to 271bn rupees in 2010[ 44 ].

Though JLR contributed 75 % of gross and 91 % of net incomes to Tata Motors quarterly consequences, its India unit saw net incomes halve. JLR gross revenues grew 34 per cent to 83,452 units in 2011[ 45 ].

In 2012, JLR has generated another 1,000 occupations at its site in Halewood so that it can run into the demand for its Evoque and Freelander theoretical accounts.

The growing has been so singular that the British luxury vehicle division now books for near 65 % of Tata Motors ‘ gross and every bit much as 90 % of its net incomes. JLR ‘s public presentation has been a cardinal driver of its stock over the last two old ages. For e.g. , JLR gross revenues last month were down 26 % , compared to gross revenues in March and the stock excessively declined 22 % . However, over the Aug-March period ( August 2011 – March 2012 ) , the stock jumped 98 % , with 72 % rise in JLR gross revenues[ 46 ].


We started our analysis by analyzing the literature survey in this subject. We tried to do a model which specifically highlights the major causes and positive impacts of amalgamations and acquisitions. After this, we continued our research by analyzing the political, cultural and fiscal facets of amalgamations and acquisitions. Then we began our analysis by sing two companies of same group.

Tata excessively paid in the instance of Corus acquisition which resulted in the dip of portion monetary values of Tata ‘s steel. Tata Steel could n’t happen much talked about synergism which was the very footing of traveling for the trade. Apart from that, trade was paid with a really high portion of debt, taken from other Tata group companies and fiscal establishments. This impacted the overall public presentation of Tata group negatively.

In instance of Tata-JLR, they clutched the trade at a sensible monetary value which was half the existent value at which Ford originally purchased. Apart from that, they got batch of co-operation from Ford. The success of the trade was un-anticipated by the industry. The cultural integrating and major enterprises taken by both the houses allowed JLR to retrieve from its ailing status.

Therefore we conclude that the result of a Cross boundary line M & A ; A ca n’t be defined by a individual factor entirely. It is a combination of multiple factors get downing from the command monetary value, funding mechanism, company ‘s civilization, and political facets to happening synergisms between the two companies.

The future eventuality of M & A ; A ca n’t be foreseen before really traveling for the trade. Even though a company considers each and every facet before traveling in front with the trade, there is still some sum of uncertainness in the result of the trade, which can be a subject of farther research in future.


Tata AnalystMeetFY-07 Presentation

Tata steel investor-presentation-feb08

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Tata motor investor presentation 2008-09

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