Ford – world’s leading automotive manufacturer which has brands like Lincoln, Mercury, Mazda and Volvo in its family, just entered into a definitive agreement to give away two of its family members namely Jaguar and Land Rover to Tata Motors. The Indian automotive giant announced a $2.3 billion bid to acquire the two most iconic brands.
This year has been going great guns for Tata Motors Ltd. It was a cold January day during the Auto Expo ’08 that Tata showcased the one-lakh ‘people’s car’ – Nano. Two months hence, Tata has again bombarded the world with the news of acquisition of Jaguar and Land Rover. The $2.3 billion sale price however is about 40 percent of the amount Ford paid to lay its ownership stamp on these two brands. It was in 1989 that Ford paid $2.5 billion to acquire Jaguar while the American major lightened its bank account further by $2.75 billion in 2000 to get ownership rights to Land Rover.
Having decided to sell off Jag and LR in August last year, Ford has taken its own sweet time to get into the final stage of discussion with the Indian business body. Tata’s rival M&M was also one of the contenders for the deal but no one could match the bid of Tata Motors.
Although Tata is going to pay $2.3 billion, upon closing, Ford will then part ways with $600 million to pump funds into the Jaguar-Land Rover pension plans. Allan Mulally, President & CEO, Ford Motor Company said "Jaguar and Land Rover are terrific brands and we are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata’s stewardship. Now, it is time for Ford to concentrate on integrating the Ford brand globally, as we implement our plan to create a strong Ford Motor Company that delivers profitable growth for all."
Shutting the critics and analysts who wondered if this acquisition is the right fit, Ratan Tata, being the immaculate self that he is, said he would preserve the iconic status of Jag and LR. He was quoted as saying "We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business."
As a clause in the deal, Ford shall supply powertrains and other vehicle components for Jaguar-Land Rover in addition to engineering support and research and development. Ford will also offer finance options for dealers and customers alike. Although a time-frame has not been set, it is believed that such activities might be continued up to 12 months.
Despite this good news, both Tata and Ford fell at the stock market. Tata plans to raise $4 billion to fund the Ford deal as well as to pump money towards the production of Nano. Analysts have raised eyebrows saying that there will be an increase in Tata’s debt load after the acquisition. Tata Motors Ltd. will dissociate from some of its subsidiaries (which have not been named yet) to raise the required funds. The plan is already underway towards execution and it is believed a couple of actions are in place already. To help with the Ford deal, Tata Motors joined hands with a consortium of banks to raise $3 billion.
With this deal, Tata can be assured of having a larger presence in the global market. Apart from the current lineup, Tata will have access to the luxury brands and their technical know-how which can be of immense help to take the battle directly to the rival’s house. Land Rover will help to improve the game and the future SUVs from Tata will benefit hugely. Additionally, Tatas are not really known for luxury, but Jaguar could just infuse the much needed energy and aura. It can be recalled, Tata showcased the Aria sports car and the Magna luxury offering at auto expos some years back, but never really did those cars see the production line. All this could change, now that Jaguar can help!
Pundits however are apprehensive since they have seen the 'Indica' fail in Europe when it was sold as Rover and are hoping that they would not let the same happen to Jag and LR.
It remains to be seen how Tata Motors will develop and produce the cheapest car and some of the most premium and expensive cars together, but it surely will be interesting. And good for us customers…
