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this presentation will take you through the major aspects of the deal and the cash flows involved in the process basically this tells you about the whole takeover process.
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Offering at the lotus feet of our master
3
India: Fastest Growing Free Market Democracy
GDP Growth Forex FII Flow FDI Per Capita Inflation
1990 4.9 % < USD 1 billion
USD 1 million (1993)
USD 97 million
USD 390
9 percent
2008 8.7 %* USD 309 billion as on Mar 28, 2008
USD 16.1 billion in 2007-08
USD 12.7 billion in 2007-08 till December (USD 16 billion in 2006-07)
USD 740
7.8 percent as on March 29, 2008
4
India: Vibrant Economy Driving M&A Activities
Growth Drivers:Globalisation and increased
competitionConcentration of companies to achieve
economies of scaleCash Reserves with corporate
Number of Deals and Value
28.2
70
18.3
12.3
782
1,081
467
306
0
10
20
30
40
50
60
70
80
2004 2005 2006 2007
US
D B
illio
n
0
200
400
600
800
1,000
1,200
Nu
mb
er
of d
ea
ls
Deal Value No. of Deals
Private equity deals value increased to USD 19 billion
In 2007, there were a total of 676 M&A deals and 405 private equity deals…
… Total M&A deal value was close to USD 51 billion…
Trends:Cross-border deals are growing faster than
domestic dealsPrivate Equity (PE) houses have funded
projects as well as made a few acquisitions in India
In 2007, the total value of M&A and PE deals was USD 70 billion…
5
BRIC Report, Goldman
Sachs
BRIC Report, Goldman
Sachs
“I have never seen India so dynamic, vibrant and full of
business opportunities”.
- Dan Scheinman, Cisco System Inc. as told to
Business Week, August 2005
- Dan Scheinman, Cisco System Inc. as told to
Business Week, August 2005
“We came to India for the costs, stayed for the
quality and are now investing for innovation”.
John RedwoodEconomic
Competitiveness Policy Group, UK
John RedwoodEconomic
Competitiveness Policy Group, UK
“India is now truly a land of
opportunity”.
Jack WelchGeneral Electric
Jack WelchGeneral Electric
“India is a developed country as far as
intellectual capital is concerned”.
Peter Loescher President and
Chief Executive Siemens
Peter Loescher President and
Chief Executive Siemens
By 2032, India will be among the three
largest economies in the world.
Why India? – Quote Unquote
Travyn Rhall,
ACNielsen
Travyn Rhall,
ACNielsen
“The Indian market has two core advantages - an
increasing presence of multinationals and an
upswing in the IT exports”.
Craig BarrettIntel
Corporation
Craig BarrettIntel
Corporation
“India has evolved into one of the world's leading
technology centers“.
Mr Paul de Voijs Managing Director
Volvo Car India
Mr Paul de Voijs Managing Director
Volvo Car India
“India is a very exciting market and
the luxury car segment is growing exponentially here”.
6
Major M&A Deals Undertaken Abroad by India Inc.
USD 12.1 billion
USD 12.1 billion Tata Steel buys Corus PlcTata Steel buys Corus Plc
USD 6 billion USD 6 billion Hindalco acquired Novelis Inc.Hindalco acquired Novelis Inc.
USD 2.3 billion
USD 2.3 billion Tata buys Jaguar and Land RoverTata buys Jaguar and Land Rover
USD 1.6 billion
USD 1.6 billion
Suzlon Energy Ltd. acquires REpower
Suzlon Energy Ltd. acquires REpower
USD 1.58 billion
USD 1.58 billion Essar Steel acquired Algoma Steel Essar Steel acquired Algoma Steel
7
Major M&A and Investments Announcements in India (1/2)
USD 11 billion USD 11 billion Vodafone buys HutchVodafone buys Hutch
USD 1.7 billion
USD 1.7 billion
Plans to spend on its development operations in India over the next four years
Plans to spend on its development operations in India over the next four years
USD 2 billion USD 2 billion Plans to establish three manufacturing plants to produce photo-voltaic units
Plans to establish three manufacturing plants to produce photo-voltaic units
USD 12 billion USD 12 billion
POSCO to invest in building steel manufacturing plants and facilities in India
by 2016
POSCO to invest in building steel manufacturing plants and facilities in India
by 2016
8
USD 0.98 billion
USD 0.98 billion
Aditya Birla Group increased its stake in Idea Cellular by acquiring 48.14-percent stake
Aditya Birla Group increased its stake in Idea Cellular by acquiring 48.14-percent stake
USD 1 billionUSD 1 billionPlans investment in private equity, real estate, and private wealth management
Plans investment in private equity, real estate, and private wealth management
Mylan Laboratories acquired a majority stake in Matrix Laboratories
Mylan Laboratories acquired a majority stake in Matrix Laboratories
USD 0.74 billion
USD 0.74 billion
Major M&A and Investments Announcements in India (2/2)
USD 1 billionUSD 1 billionPlans investment in private equity in Indian markets
Plans investment in private equity in Indian markets
In the year 2008……
• M&A deals in India in 2008 totaled worth USD 19.8 bn
• Less compared to last year which stood at 33.1 bn $.
• Decline of M&A activity was in line with the global activity.
• Cross border M&A totaled 8.2 bn $ compared to 18.7 bn $.
THE DEAL………………
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
Henry Ford and his Model T
Firsts in history
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
Company Quote Change % Change
Market Cap
P/E Ann. Revenue
Ann. Net Income
Toyota Motor Corporation
100.56 -3.16 -3.05 181.51B 9.16 234,033.65 16,066.36
Daimler AG 78.29 -1.31 -1.65 79.38B 13.03 158,080.17 7,711.65
Honda Motor Co., Ltd.
31.10 -1.20 -3.72 56.41B 7.86 108,349.45 5,788.49
Nissan Motor Co., Ltd.
17.07 -0.73 -4.10 34.91B 8.58 100,257.66 4,413.04
PACCAR Inc. 46.72 -3.32 -6.63 17.12B 14.22 15,221.70 1,227.30
Ford Motor Company
7.65 -0.08 -1.03 16.83B - 172,455.00 -2,764.00
General Motors Corporation
20.51 -0.76 -3.57 11.61B - 181,122.00 -43,297.00
Top Seven Auto and Truck Manufactures Organized by Market
CapitalizationAs of April 22, 2008
Jaguar: The ups and downs
• 1922 - Founded in in Blackpool as Swallow Sidecar company
• 1960 - Jaguar name first appeared in 1935• 1975 - Nationalized in due to financial
difficulties• 1984 - Floated off as a separate co in the stock
market• 1990 - Taken over by Ford
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
• 1948: Land Rover is designed by the Rover Car co
• 1976: One millionth Land Rover leaves the production line
• 1994: Rover Group is taken over by BMW• 2000: Sold to Ford for £1.8 billion
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
The Deal Process
• 12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar.
• August 2007 - Major bidders are identified
The Deal Process
Likely buyers• Tata Motors • M&M• Ceribrus capital Management• TPG Capital• Apollo Management
The Deal Process
• India’s Tata Motors and M&M arrive as top bidders ($ 2.05b & $ 1.9b)
• 03/01/2008 – Ford announces Tatas as the preferred bidders
• 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors.
• 02/06/2008 – The acquisition is complete
TATA MOTORS – A SNAPSHOT
• TATA GROUP – 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
• NANO will mark the advent of India as a global centre for small-car production and represent a victory for those who advocate making cheap goods for potential customers at the 'bottom of the pyramid' in emerging markets.
• International praise came from Standard & Poor’s, which in December 2006 expressed the view that the “policy to support its companies and the improved financial profile of its entities also enhances the overall financial flexibility of Tata Motors.”
Key issues
• Ford acquired Jaguar for $2.5 billion in 1989.
• Ford acquired Land Rover for $2.75 billion in 2000.
• But the US auto major put the two marquees on the market in 2007 after posting losses of $12.6 billion in 2006 - the heaviest in its 103-year history.
Ford’s standpoint.
• Tony Woodley, joint head of Britain's biggest trade union says:
• Unite on the takeover.• 'But with the commitments the Tatas have given to the
future of Jaguar-Land Rover and the long-term supply agreements for components, we're obviously pleased.
• Jaguar's sales fell 19% to a little below 60,500 units in 2007. But Ford says that is mainly due to the phasing out of the S-type, which the company stopped selling from September, and the slowdown in the US, where it sells around a third of its total volume.
Why is Ford selling?• Reports said losses at Jaguar stood at USD 715 million in
2006. jaguar has been a dog i.e. it has not been able to provide any profit for ford because of the high manufacturing costs provided in the united kingdom.
• The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007..
• Bringing down production costs and turning around the company successfully, will be the challenge,” analysts said. It’s a test that Ford failed.
• Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar is so intertwined.
Ratan tata says
• We aim to support their growth, while holding true to our principle of allowing the management and employees to bring their experience and expertise to bear on the growth of the business.‘
• 'We have enormous respect for the two brands and will endeavor to preserve and build on their
• heritage and competitiveness, keeping their identities intact,' he said in a statement.
Why acquire JLR?Is TATA catching a falling knife…or
• Long term strategic commitment to automotive sector.
• Opportunity to participate in two fast growing auto segments.
• Increased business diversity across markets and products.
• Land rover provides a natural fit for TML’s suv segment.
• Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portfolio.
• Benefits from component sourcing,design services and low cost engineering.
Tata and the dream…NEED FOR GROWTH
• In the past few years, the Tata group has led the growing appetite among Indian companies to acquire businesses overseas in Europe, the United States, Australia and Africa - some even several times larger - in a bid to consolidate operations and emerge as the new age multinationals.
• Tata Motors is India's largest automobile company, with revenues of $7.2 billion in 2006-07. With over 4 million Tata vehicles plying in India, it is the leader in commercial vehicles and the second largest in passenger vehicles.
COMPETITIVE ADVANTAGE• Tata Motors is vulnerable to greater competition at home. Foreign
vehicle makers including Daimler ,Nissan Motor ,Volvo and MAN AG have struck local alliances for a bigger presence.
• Tata Motors, which has a joint venture with Fiat for cars, engines and transmissions in India, is also facing heat from top car maker Maruti Suzuki India Ltd , Hyundai Motor , Renault and Volkswagen
Analysts pick• Analysts indicate that Tata Motors can comfortably finance the
acquisition of Jaguar and Land Rover. The Indian automaker is sitting on a cash pile of over Rs 6,000 crore and generated free cash of over Rs 1,000 crore during FY07. It can easily use these reserves to raise more funds without endangering its finances. At the end of last financial year, Tata Motors’ debt-to-equity ratio was a low 0.56, giving it ample head room to raise more funds.
• Over the next 3-4 years, Tata Motors plans to invest Rs 12,000 crore in setting up new units for a small car, trucks and SUVs and also to expand the capacity of its existing units.
• challenge for Tata Motors. These marquee brands have very high production costs and require phenomenally high engineering and research capabilities as they compete with likes of BMW and Audi. “Taking over the brand is easy, bringing down production costs and turning around the company successfully, will be the challenge,” analysts said. It’s a test that Ford failed.
WHAT IS TATA PAYING FOR ????
FINANCING WAYS• Low leverage of the auto biz provides funding
flexibility• Current ly financed the purchase through a
$3bn, 15month bridge loan– It intends to refinance the loan through
long-term funds• valuable stakes in group companies
owns $400m of Tata Steel at current pricesowns stake in Tata Sons (Tata Group’s
holding company) worth at least $600m
KEY ASSUMPTIONS
KEY ASSUMPTIONS
GROWTH RATE 0.09
Terminal Growth Rate 0.03
EBIT as % of SALES 0.069
Discount Rate 0.06
JLR Shareholders Equity 2,456
Result
• ACTUAL 2.3 BILLION RUPEES
• VALUATION 2.80 BILLION RUPEES
JAYAKRISHNASUBRATPHANEENDRAMADHUSUDANRANJAN