Tata Motors buys Jaguar, Land Rover

Analysts see little reason to share the joy (The Economic Times, 27th March 2008)Tata Motors’ acquisition of the two iconic brands — Jaguar and Land Rover — without doubt ranks among the high-profile global deals clinched by Indian firms so far. But if auto analysts are to be believed, this may not be the best time to buy Tata Motors shares. At the time of going to press, Tata Motors’ ADRs were trading 2.30% lower on the NYSE Euronext at $16.96. It had hit a low of $14.71 on March 17, 2008. Meanwhile, Ford Motors was trading at $2.35, down 2.08%. The overwhelming consensus is that the acquisition will strain the company’s bottom line near term, thus putting pressure on the stock price. According to Enam Securities’ auto analyst Sahil Kedia, “There is a likelihood that there will be pressure on the profit after tax in the short term” as it is still “slightly unclear how Tata will fund the acquisition”. He feels that the Indian company might also use a “certain amount of loan receivables on its books” to fund the acquisition. In a similar context, HDFC Securities’ executive director and head (institutional business) Sanju Verma says “The success of the deal rests on the Tatas’ ability to effectively manage apparent brand positioning mismatches”. She also expects “EPS dilution could be around 10% plus though earnings may be impacted by a sharper 40-45%, after taking into account the financing costs and losses attributed to both brands”. She is assuming that the JLR deal is pegged at $2 billion and Tata Motors applies a funding mix of internal accruals, equity and debt. Analysts also say much depends on how Tata Motors will be able to boost the flagging sales of both loss-making brands. According to reports, Jaguar sales dropped 33% in the US and Europe in the first two months of the current year. Land Rover sales fell 13% in the US and around 7.7% in Europe during the same period. Auto analyst Piyush Parag of Religare Enterprise has a “buy recommendation pre-deal” as the “valuations seem extremely attractive at current levels”. However, the brokerage will update its recommendation post Tata-Jaguar Land Rover deal as “presently, it will be too early to comment on the valuations, as the financial details of the deal are yet to come.” Interestingly, while analysts are expecting selling pressure on Tata Motors shares in the coming days, fund managers started reducing their exposures around six months ago. Data clearly shows that in the past six months, mutual funds have brought down their exposure by a little over 30%. In September 2007, MFs were holding nearly 4.50 crore shares of Tata Motors, which has come down to around three crore in February. On Wednesday, the stock lost marginal ground to close at Rs 679.40. Since January 3, when news of the deal first became public, the stock has lost more than 14%. However, the benchmark Sensex, in the same period, has shed nearly 21%. Meanwhile, ICICI Direct’s senior analyst Pankaj Pandey feels that the “recent equity market turmoil has already taken a toll on the stock and so further downside from current levels should not be expected”.

Tata Motors buys Jaguar, Land Rover for $2.3 bn
Tata Motors has bought Jaguar and Land Rover for USD 2.3 billion. Ford said it would pay about USD 600 million towards the pension plan, reports CNBC-TV18.
Ford will also supply power trains, stamping, and other components. Along with that, it will provide engineering support, including research and development. Ford Motor Credit will provide financing to JLR dealers for 12 months. There will be no change in the terms of employment for JLR employees. Ford added that the deal comprises of brands, manufacturing plants, and IPR. The deal will be closed by the end of the next quarter.
The Ford Union said Tatas expect to employ more people and they are happy with the pension plan.
Ratan Tata, Chairman, Tata Group said he is very pleased with JLR being a significant part of the auto business. Tata Motors would keep the identities of Jaguar and Land Rover intact, he added. “We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business,” said Tata.
Tony Woodley, Joint General Secretary of Unite - the union of JLR, said if JLR had to be sold then the Tatas was the best option. “We would have preferred that Ford keep these companies in the family, especially with Land Rover being so profitable," he said. "But with the commitments that the Tatas have given to the future of Jaguar-Land Rover and the long-term supply agreements for components, especially engines from Bridgend and Dagenham, we are obviously pleased they are in the game.”