TATA Case on Unrelated Diversification

8/10/2019 TATA Case on Unrelated Diversification

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BY GROUP 5, SECTION 1

HARSH KAMAL BHATNAGAR (FT151009)PRIYANKA MANOJ KUMAR (FT151012)

SREERAM K MOORTHY (FT151033)MAYANK MODH (FT151057)ANOOP KRISHNAKUMAR (FT151077)KUSHAL KISLAY (FT151093)DIKSHA MEHTA (FT151097)


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House of Tata:

Acquiring a Global Footprint

Group 5:

Amar Pratap Singh

Chandni Gupta

Jyoti kumar Rastogi

Vishal Drolia

Yash Sobti


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JamsetjiTata(183

9

1904)


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JRD

Tata(19

31

1991

)


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RatanTata

(1937T

illDate)

Graduated with a degree in Architecture andStructural Engineering from Cornell University.

Also completed advanced management programmeat Harvard Business School.

Appointed the Director-in-Charge of The NationalRadio & Electronics Company Limited (Nelco) in1971.

Became the Chairman of Tata Industries in 1981.

Took over as Tata Group Chairman in 1991


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Evolution and Trend


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Evolution and Trend


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Structure


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TATA Group

Globalization Strategy


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Basis for Globalization Strategy


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Why Globalization?

Resources andCapabilities

Technology

Superior Human

Resources

Innovation

Government Regulationand Taxation

Risk Diversification


14/29Va

riousRou

testoGlobalization Export

TransportCosts

Tariff Barriers Free TradeAgreements

Set-up

SubsidiaryMarketing Manufacturing

Full Scale

OperationsJoint Venture or

Alliance

Independent

Operations


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TATA GroupGlobal Network

- Began

Relationship in

1977

- Over 100mn of

Investment

A

F

R

I

C

A

- Strong Base- Headquarter in

India- Buildingsignificant

presence in China

A

S

I

A

- Operating here for

over 30 Years

Australia

- Present for over 60years

- More than 24000employees

- More than 80 officesacross N. America

North America

- Presence since 1990s

- More than 8000

employees across S.

America and Latin

South America

- Started in UK in1907 as first

base

- Largest IndianEmployer in UK

- 45000 StrongWorkforce

E

U

R

O

P

E


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MergerandA

cquisition

s

Tata company Acquired company Country Stake acquired

2011

April Tata ChemicalsOlam International, Republic of

Gabon

Republic

of

Gabon

25.1 per cent

August Tata Chemicals EPM Mining Ventures Canada 30.6 per cent

2010

January Tata

Communications

BT Group's (BT) Mosaic

business

UK 100 per cent

April TRF Hewitt Robins International UK

December Rallis India

(through Tata

Chemicals)

Metahelix Life Sciences India 53.5 per cent

Tata Chemicals British Salt UK 100 per cent (wholly-owned)

Tata International Bachi Shoes India India 76 per cent

Tata International Euro Shoe Components India 76 per cent

2009

January Tata

Communications

Neotel South

Africa

30 per cent

March Tata Tea

(now Tata Global

Beverages)

Grand Russia 33.2 per cent

July TRF Dutch Lanka Trailer

Manufacturers

Sri

Lanka

51 per cent

October Tata Motors Hispano Carrocera SA Spain Remaining 79 per cent

2008

January Tata Chemicals General Chemical Industrial

Products (now Tata Chemicals

North America)

US 100 per cent stake

Tata Projects Artson Engineering India


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MergerandA

cquisition

s

March Tata Motors Jaguar and Land Rover brands UK

Telco Construction Equipment

Company (Telcon)

Serviplem SA Spain 79 per cent

Telco Construction Equipment

Company (Telcon)

Lebrero SA Spain 60 per cent

June Tata Communications China Enterprise

Communications Limited (CEC)

China 50 per cent equity

interest

August Voltas Rohini Industrial Electricals India 51 per cent

September Tata Power Geodynamics Australia 10 per cent

October Tata Motors European Technical

Centre Plc

Miljbil Grenland /

Innovasjon

Norway 50.3 per cent

December TCS Citigroup Global Services US 100 per cent

2007

January Tata Steel

Corus

UK 100 per cent

March Tata Steel Rawmet Industries India

April Indian Hotels Campton Place Hotel US

Tata Power Acquired Coastal Gujarat Power India

Tata Teathrough Tetley group

(now Tata Global Beverages)

Vitax and Flosana

trademarks

Poland

Tata Communications Transtel Telecoms (TT) South

Africa

June Tata Power PT Kaltim Prima Coal

and PT Arutmin Indonesia

Indonesia 30 per cent equity

stake

October TRF York Transport Equipment (Asia) Singapore 51 per cent stake

2006

January Tata Metaliks Usha Ispat, Redi Unit India 100 per cent

(wholly-owned)

Tata Interactive Tertia Edusoft Gmbh Germany 90 per cent

Tertia Edusoft AG Switzerland 90.38 per cent


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MergerandA

cquisition

s

October Tata Teathrough Tata Tea

(GB)

(now Tata Global

Beverages)

Good Earth Corporation & FMali

Herb Inc

US 100 per cent (wholly-

owned)

TCS Financial Network Services Australia

TCS Pearl Group UK Structured deal

November TCS Comicrom Chile

December Indian Hotels Starwood group (W Hotel) Sydney 100 per cent (wholly-

owned)

Tata Chemicals Brunner Mond (now Tata Chemicals

Europe)

UK 63.5 per cent (December

2005)

2004

January TCS Airline Financial Support Services

India (AFS)

India 100 per cent (wholly-

owned)

March Tata Motors Daewoo Commercial

Vehicle Company

Korea 100 per cent (wholly-

owned)

June Tata Chemicals Hind Lever Chemicals India Amalgamation

November Tata Communications Tyco Global Network US

2003

July Tata Communications Gemplex US

2002

February Tata Sons Tata Communications

(formerly VSNL)

India 100 per cent (wholly-

owned)

September Indian Hotels Regent Hotel India Effective 100 % stake

2001

November Tata Sons (TCS) Computer Maintenance Corporation

(CMC)

India

2000

February Tata Teaand

Tata Sons

Tetley group UK 100 per cent

(wholly-owned)


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M&A Analysis

St

rategi

cOb

je

ctives

Tea Industry India Hotels

(IHC)

Steel Industy Automotive Software/Servic

es

Tetley (UK) Regeant Hotels,

The Pierre, W

Hotel, Ritz

Carlton Boston,

Innovative Foods

Corus (UK),

NatSteel (Spore)

and Millennium

Steel (Thailand)

Daewoo

Commercial

JaguarLand

Rover (Under

Consideration)

CMS, Phoenix,

Hughes Telecom,

Aviation

Software, TKS-

Teknosoft, Total

Communication

Solutions

M&A

Companies

Access to

developed Markets

complementing

Tata tea brands

Chain of hotels

seamless

support internal

and external

guests

Yes

disintegrated

strategy

Yes

complementing

exciting

product

portfolio

Yes

frontrunner for

Global market in

IndiaFirst

Moveradvantage

Strategic Fit

for the TATA

Group

In line with

management vision

of global expansion

Yesaccess to

gateway markets

Yes Yesreach

middle class

and bottom of

pyramid

markets

Yesachieve

global presence

and brand

building

Alignment

with

ManagementVision?

Addition of value

added tea brands

New premium

properties

Diversified

Product Mix

Diversification

of product

portfoliotrucks, buses,

cars (low to

premium)

Diverse

Product

Portfolio

Access to new

markets

YesNew

international

markets

Access to new

strategic

markets

Access to new

markets

specifically in

Europe and

USA

Mature and

emerging

Markets


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M&A Analysis

St

rategi

cOb

je

ctives

Market Reach N/A N/A Access to niche,

advanced

technology

Yesaccess to

advanced

technology

Complimenting

and synergistic

with existing

portfolio

Technology YesComplimenting

TATA tea with

Tetley

Yesleveragingthe Taj brand

Yesleverageeach others

strengths and

achieve

backward

integration

Yescomplementing

the already

existing

products of the

TATA stable

Yes -complementing

the already

existing products

of the TATA

stable

Synergies

with TATA

Group

Companies

Yes Yes Yes Not yet Yes

EVA Positive Yes Yes Yes Yes Yes

Achieve

Economies of

Scope

Yes N/A Yeskey value

proposition

Yesachieve

synergies

across the

supply chain in

diverse markets

N/A

Supply Chain Yes N/A Yeskey value

proposition Yesachieve

synergies

across the

supply chain

in diverse

markets

N/A

&A A i C i


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M&A Analysis Conclusion

One hundred years from now, I expect the Tata to be much bigger than it

is now. More importantly, I hope the group comes to be regarded as being

the best in India best in the manner in which we operate, best in theproducts we deliver, and best in our value systems and ethics. Having said

that, I hope that a hundred years from now we will spread our wings far

beyond India..

-- Ratan Tata

Despite of all pits and falls, it is moving its wing Over India. The way TATA isgrowing, definitely we can not neglect its role in Globalization.

S h f T O i i S


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Strengths of Tatas Organization Structure:

A strong integrated corporate identity

Share of Tata Sons was 29% which servedtwo purposes Gave them veto rights and hence a

protection from any potential takeover. Ensured a centralized operational control

over the group. Establishment of GEO and GCC to oversee

group operating companies and ensurebetter coordination amongst them.

Strong leaders across all divisions.

T T i i i f T l


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Tata Teas acquisition of Tetly:

Challenges in taking it to global platform:

Building a vision, structuring it and making it relevant so that it canbe implemented. Raising capital by way of debt from the future earnings of the large

global organisation which was yet to be acquired was difficult. The strategic direction which may lead to building synergies in

future was missing.

Tactics Used: The financial tools used ensured that other business were

unaffected by the debt so raised. Tetlysstrong management was retained. Task forces were created for successful integration.

Identification of areas where it was possible to synergize better anddevelop efficiencies.

SWOT A l i f T t G


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SWOT Analysis of Tata Group:

Strengths

Experience

Resource

capabilities(People and

raw material)

Business modelculture

Weakness

Distribution

Macro environment

Opportunities

Exports

New products

New markets

Acquisitions and

mergers

Threats

Free market

Low barriers

Globalization of

economy

Sit ti l A l i


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Situational Analysis:

Hold significant share of countrys passenger carsand dominates Indias commercial truck market.

Brand targeting low and middle income economiesand the middle of the market segment

Targeting low end auto segment through Nano

VEHICLE MARKET SHARE

Cars 17%

Light trucks 34.82%

Medium/heavytrucks

64.74%

Buses 51.12%

A l i f JLR


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Analysis of JLR:

Ford acquired Jaguar ,a British luxury and sports carbrand in 1989 which has been unprofitable underFords ownership

Ford acquired Land Rover ,mid-range and luxury

sports-utility vehicles in 2000 which was reported tobe profitable under Fords ownership

Ford made losses of $12.6 bn in 2006 which wasmostly due to Jaguar

Jaguar sales growth in 2006 was 32% less than theprevious year in US.

Ad t f A i iti


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Advantages of Acquisition:

Access to the high end of the auto business

Customer having various options to choose the product, with increasedportfolio

Strategic opportunity to acquire brands with global presence and arepertoire of well established brand (opportunities to become one ofthe major players)

Reduced dependence on the Indian market which accounted for

majority of sale(help mitigate risk) Access to latest technology, robust designing and R&D capabilities

which can help in improving their core products in India Synergy creation

Cost competitive advantage and opportunities of synergy by usingSteel supplied by Corus

Established brand available at affordable investment ($1 bn-2bn) Strong brand image of JLR can facilitate the acceptance of Tata product

in the international market. Using JLR distribution channel for their product to enter in US market

which seems unlikely without the acquisitions

R d Ah d


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Road Ahead:

Tata Motors should go ahead with the deal as it givesaccess to Global market

They should be able to leverage the existingdistribution network

Should be able to instill confidence that the premium

brand is in safe hands They should handle the union judiciously and

employee productively Integration of the culture of the two companies as a

part of their corporate strategy.

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TATA Case on Unrelated Diversification