Merger and Acquisition
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.
M&A Activities in India:
In 2007, there were a total of 676 M&A deals and 405 private equity deals, in 2007, the total value of M&A and PE deals was USD 70 billion, Total M&A deal value was close to USD 51 billion, Private equity deals value increased to USD 19 billion
Growth Drivers:
Trends:
Major M&A Deals Undertaken Abroad by India Inc.
In year 2008..
Ford Motors Company
Location: Dearborn, Michigan; Founded: 1903 by Henry Ford; Competitors: General Motors, Toyota; Brand names: Lincoln, Mercury, Volvo, Mazda, Jaguar and Land Rover, CEO: Alan Mulally.
1913 - Assembly Line: “low priced, mass-produced automobile with standard interchangeable parts.” Hiring of African Americans, Virtual manufacturing, focus on safety, Advantage through fuel efficiency
Jaguar: The ups and downs:
A statement of ultra luxury, Holds Royal warrants, Rarely advertised, Ford's formula one entry since 1990s
The case of Land Rover:
Known for superior off-road performance, Used by military for projects and expeditions, Safe but less reliable, Makeover in recent times
Key issues:
Ford acquired Jaguar for $2.5 billion in 1989.
The Deal Process: -
12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar. August 2007 - Major bidders are identified
Likely buyers:
Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management
TATA MOTORS - A SNAPSHOT
TATA GROUP is 150 year old, Previously Tata Engineering and Locomotive Company, Telco.
Tata Motors?s break-even point for capacity utilization is one of the best in the industry worldwide
Listed on the New York Stock Exchange in 2004.
Making Waves Internationally
Why is Ford selling?
What Ratan Tata says?
Why acquire JLR?
Tata and the dream
NEED FOR GROWTH
COMPETITIVE ADVANTAGE
Daimler, Nissan Motor, Volvo and MAN AG have struck local alliances for a bigger presence.
Analysts pick
FINANCING WAYS
It intends to refinance the loan through long-term funds
owns $400m of Tata Steel at current prices
owns stake in Tata Sons (Tata Group?s holding company) worth at least $600m
Valuation of deal :
Cost synergies -
Material costs and not manpower key to better margins.
Investors concerns on manpower costs misplaced
Investors apprehensive that TAMO has agreed to continue with plants in UK
Purchasing basket offers bigger opportunity for cost reduction
It is more important to manage the material & sourcing costs to improve margins - Material Cost is 4-6x the wage cost for high-end products such as Land Rover
Tata Group has multiple levers
Tata Auto Comp (TACO) - TATA group has a a rich ecosystem of JVs with leading players in Auto ancillary space held through TACO.
TCS, Corus and Tata Technologies have varied competencies in the Auto space
We believe an improvement of 50-70bps in EBITDA margin possible in JLR over the next 2 years (current EBITDA margin)
We estimate CY2007 EBITDA margin of JLR at around 6.5% - This could make the acquisition PAT accretive in CY2009/FY10E
h3>Revenue synergies - A long-term possibility
Revenue synergies limited in the medium term (2-3 years)
TAMO + JLR: Leverage and Valuation ratios
TAMO is trading inline/modest discount to global peers
Funding: a few possibilities for TAMO
q Sale of Tata Steel Shares
q Stake sale / IPO of Telcon, HV Axles, HV Transmissions
q Sale of Vehicle Finance business (Tata Motor Financial Services Ltd)
q We also do not rule out an LBO structure to finance the purchase
