ENRIQUE J. MARTINEZ

Land Rover and Jaguar, To Acquire or not to Acquire?

Presentation Outline

RecommendationExternal EnvironmentInternal EnvironmentJustifications

Technological AdvancementsDiversification of MarketsSynergy with other group firmsCompleting the product portfolio

Critical Success Factors for the Success of the Acquisition- Managing the Current Level of Debt- Manage the Unions in both companies - Leverage existing distributor network and use with own- Prepare to undertake global competition- Upgrade corporate culture

Recommendation

Tata Must Acquire Land Rover and Jaguar.

What are the External Environment factors to Consider?

India- Relaxation of trade barriers new multinational competitors

competing for the local market.- Government has approved up to 400% capitalization FDI investment

for Indian Companies- India’s economy is still vulnerable to volatility.- There is an overall boom of the Indian Economy - Indian companies are increasing outside direct investments.

Asia- Generally Asia has been propelling the world’s growth in the 1990’s

and 2000’s- New markets and increasing affluence of its population

Europe and North America- Slow growth but very mature markets

What are the Three main company thrusts to Consider?

- The Thrust of Ratan Tata for an even More Globalized Tata Group though market diversification and entrance to other niches.

- The thrust to focus on core industries to maximize profitability and market share.

- The need for inter company cooperation and synergy.

Justifications for Acquiring Land Rover and Jaguar

1. Technological advances2. Diversification of markets3. Synergy with Other Group Firms4. Completing the Product Portfolio

1. Technological Advances

Tata gains the following

1. Improved manufacturing across different product lines

2. Increased competitiveness in

design and manufacturing

Technology gets used in Tata Motors

Transfer of

Technology

The transfer of technology eventually helps the company’s

products compete in the local and global markets.

2. Diversification of Markets

Company Saves money in the

Short Run

This contributes to the failure in diversification

Tata Motors bears

undiversified economic risk

Company experiences Short term Cash Outflow and increased debt

Company is able to use Jaguar and Land

Rover to enter North American

Market

Tata Motors risk gets diversified .

International market Knowledge Acquired

Scenario if Land Rover and Jaguar is not Acquired

Scenario if Land Rover and Jaguar is gets acquired

Failure of the Thrust for Market

Diversification

Success of the Company’s Thrust

for Market Diversification

3. Synergy with Other Tata Groups

Tata Steel

Tata Motors

Tata Hotels

Jaguar and Land Rover

Lower cost of Steel (primary component for vehicle production)

Contribution to Economies of Scale More competitive

spare parts costing, expertise in durability, more efficient operations

Global Network, Technology, Aesthetic designs for diversified markets

Reinforced credentials by association with top hotels.

Mutual Brand Image Effects through association

4. Completing the Product Portfolio

Tata Motors is Currently in passenger cars, light trucks , medium and heavy trucks as well as buses.

For the passenger car segment, Tata Motors serves the low income to middle income market

It does not have an existing luxury brand to compete with foreign counterparts such as Lexus, BMW, Mercedes Benz etc.

Creating a Luxury Brand from scratch is difficult and takes years. India DOES NOT HAVE a good reputation for luxury car brands

The most practical solution is to acquire well established brands to tap the luxury segment. A FAST GROWING segment in Asia.

Critical Success Factors for effectively Managing Land Rover and Jaguar

1. To be able to find a source of financing for the 1-2 Billion Dollar acquisition of Land Rover and Jaguar.

2. To be able to integrate Land Rover and Jaguar to Tata’s Global Strategy, debt liabilities of the mentioned companies must be managed.

3. Acquiring Jaguar involves dealing with its union, Tata must be able to handle them and manage these future employees productively.

4. Tata must be able to leverage on the Existing distribution network as well as manage foreign competition

5. Corporate culture must be addressed to be able to execute this acquisition as part of the company’s global strategy.

1. Financing the Acquisition

Since Tata Motors corporation has a negative cash balance (2.321 Billion Rupees in 2007) alternatives must come from other business units.

The financing will mainly come from the cash flow of Tata Steel as it has 96.950 Billion Rupees in cash flow in 2007. This translate to an cost of 43.16-86.32 Billion Rupees.

External financing would be recommended to the level where credit rating is not compromised.

* (Exhibit 6 Indian Hotel 2007 Revenue in Rupees divided by Exhibit 7’s Indian Hotel Revenue in 2007 Dollars ) Given the conversion rate of 43.16* dollars per rupee and the cost of the acquisition is 1-2 Billion Dollars,

2. Managing the Liabilities of Jaguar and Land Rover

Sustain the Company’s Growth

Stabilize the debt of Jaguar and continuously work on its profitability

Land Rover could now optimize its debt structure. To give maximum shareholder

value

Consider restructuring the loans

To enable Jaguar to be profitable though less interest payments

Enable Land Rover to invest in capital expenditures that will ultimately improve

profitability

Tata Motors Acquires Jaguar and Land Rover

Need: Jaguar must be operated Profitably Need: Land Rover profitability must improve

4. Managing the Labor Union (Jaguar)

Establish Communication with the Union

Establish Goals for the Union

Reward and Controls

• Reassure them of Job Security

• Gain the Trust of the Union

• Establish Productivity goals and policies

• Inform them about the situation of the firm.

• Consult with Union and set an accepted performance reward scheme

• Reward and impose sanctions as necessary

Jaguar’s Existing employees are an asset to the firm, because of their skill base and experience. However, before taking over the company mutually beneficial agreements must be first established.

5. Leverage Existing Distribution Networks and Manage Competition

Scenario if Land Rover and Jaguar is Not Acquired

Presence in North America

Presence In Europe

Presence In Asia

Present No No Yes- Concentrated in India

Cost of Building network

Large. Investment in Distribution Infrastructure and growing own luxury vehicle brands

LargeInvestment in Distribution Infrastructure and growing own luxury vehicle brand

ModerateGeographical access and market structure is nearer to India

Implication Very difficult to grow organically as the company needs new manufacturing technology and updated designs

Very difficult to grow organically as the company needs new manufacturing technology and updated designs.

Market growth potential is not maximized

Leverage Existing Distribution Networks and Manage Competition

Scenario if Land Rover and Jaguar is Acquired

Presence in North America

Presence In Europe

Presence In Asia

Present? Yes Yes Yes and easier expansion

Cost of Building network through organic growth

Moderate.Existing distributor network is present. Improvements still needed. No need for extensive marketing budget as brand reputation is established

Moderate. Existing distributor network is present. Improvements still needed. No need for extensive marketing budget as brand reputation is established

Moderate.Land Rover and Jaguar needs to be aggressively marketed to Asia, but the two brands have already good brand recall- market opportunities are tapped.

Implication A good entry strategy for Tata in North America.

A good entry strategy for Tata in Europe

Tata is able to exploit Asia’s emergence.

6. Corporate Mind Set Must be Addressed

A global cultural mindset must be adapted by the company. This ensures alignment with the vision of the chairman to the execution of the strategy.

Rank and File Staff of Senior management Is Risk Averse. Extremely

Conservative

Results to conflict with Chairman’s Ratan Tata’s

Global Mindset

Execution of Global Strategy is compromised

Change to Global Mindset

Overall Global Mindset is undertaken with a

balance for managing risks

Minimal Conflict with Chairman’s Plan of

Action

Excellent execution of Tata’s Global Strategy

Current Mindset

Thank You.