We all are aware that the Indian auto industry is fast becoming the hotbed for global auto giants, but a converse situation was never thought off. In a recent development the Indian auto giants: Tata and M&M, averting the aforesaid drift, have staked their claim for the potential takeover of the iconic British Brands, Jaguar and Land Rover. The deal size is being anticipated at about $1.5 billion.
Industry watchers said the Tatas may finance the bid in concurrence with Fiat, which has the Ferrari and Alfa Romeo brands in its portfolio. The two automobile majors recently entered into the alliance for joint marketing and manufacturing of Fiat models in India.
The bids are due soon and both Indian players see substantial value in these offbeat luxury marquees. However no final verdict has been given by either player. Tata Motors may also be teaming up with private equity players for the deal, apart from the possibility of bidding with Fiat. Indeed the Tata-Fiat combination could even team up with a private equity player, though there is no authentication of this.
As for M&M, its real interest is in Land Rover but since the two brands are being offered as a package deal, it is looking at a combined bid for the two. Even though there are no conformations on the size of the deal, international media is pegging it at around $1.5 billion, significantly more than the $848 million that Ford got for its other British bespoke brand Aston Martin this March.
Both Tata and Mahindra have signed confidentiality agreements and are currently assessing the possibility of making a bid. Besides, people close to the status said Tata Motor’s evaluation of a bid was at an exploratory stage and may not lead to a formal bid.
The two companies are now valued at around $1.5 billion which is a lot less than the $2.5 billion that Ford paid for the Midlands-based Jaguar. Rumors that the two would be clubbed together in a bid to make the former more attractive have been doing the rounds since last August.
According to industry sources, private equity firms Apollo Management, Cerberus Capital Management, Blackstone Group and Alchemy Partners have allegedly been engrossed in the Jaguar-Land Rover deal. Ford, which had losses worth $12.6 billion last year, has been selling off its Premier Automotive Group brands and Volvo Cars.
Analysts specify that Tata Motors can finance the acquisition of Jaguar and Land Rover at ease considering that the automaker is sitting on an estimated cash pile of over $1.5 billion. It can easily use these reserves to raise more funds without endangering its finances.
The question arises why a company should spend $1.5 billion in acquiring Jaguar and Land Rover, when it has its own large plans. By the next 3-4 years, Tata Motors plans to invest $ 3 billion in setting up new units for a small, trucks and SUVs. The company is also planning to expand the capacity of its existing units.
Besides Tata, other car makers may still be interested in bidding, while a formal auction is also likely to magnetize private equity firms. There’s a signal that if the proposed acquisition goes through, it’s going to be a challenge for Tata Motors.
The marquees have very high production costs and necessitate astonishingly high engineering and research potentials as they compete with likes of BMW and Audi. Sadly though, Tata does not possess such capabilities. Clearly, taking over the brand is easy but bringing down production costs and turning around the company successfully is not a child’s play, irrespective of how big the name is.
Courtesy: Economictimes
