Tata takes pole spot in Jaguar
bidding By Sudha Ramachandran
BANGALORE - India's Tata Motors has raced
ahead of its rivals in the bid to acquire ailing
US carmaker Ford Motors' British luxury car
brands, Land Rover and Jaguar, with its bid
receiving crucial backing this week from a key
labor union.
Others in the race to acquire
the two marques are Mahindra & Mahindra,
India's largest utility vehicle and tractor
manufacturer, and OneEquity Partners, a US private
equity fund backed by JP
Morgan. Unite, Britain's
largest manufacturing union, said on Thursday that
Tata Motors is its preferred choice to take over
Jaguar and Land Rover should they be sold. The
union had earlier expressed reservations over
Tata's bid as it feared possible outsourcing of
manufacturing activities.
These
apprehensions seem to have been allayed on Tuesday
when the three bidders made presentations to union
representatives. In his presentation, Tata Motors
managing director Ravi Kant is said to have
assured workers that the company had no plans to
outsource British jobs to India and that
executives were free to stay if they wanted to.
If a sale does take place, the union would
prefer a "partner with an established presence and
background in manufacturing", Unite said in a
statement. This ruled out support for One Equity
and for Mahindra & Mahindra, whose "bid is
linked with Apollo, a private equity company", the
statement said.
Although union backing is
not essential to clinch the deal, the support is
seen as important. This is a politically sensitive
purchase. Land Rover and Jaguar directly employ
about 16,000 people in Britain. The figure touches
40,000 when employment generated throughout the
supply and support chain is included. Ford would
prefer to conclude an agreement with the union's
green light, as it will continue to remain a large
employer in Britain. Ford has major engine plants
at Dagenham in Essex and Bridgend in Wales.
When Ford announced in mid-July that it
was putting Jaguar and Land Rover on the block, a
host of private equity players including Cerberus,
Ripplewood, TPG and One Equity were reported to be
in the fray. The race narrowed down to the Tatas,
One Equity and Ripplewood after Mahindra &
Mahindra pulled out in September as it was
reportedly not keen on picking up Jaguar. Mahindra
& Mahindra subsequently returned to the
negotiations. Ford has now short-listed Tata
Motors, Mahindra & Mahindra and One Equity.
Cash-strapped Ford - the number two
US-based car maker - has been mulling a sale of
Jaguar and Land Rover for a while. Jaguar, which
Ford purchased in 1989 for US$2.5 billion, has
been bleeding losses. The US company has poured in
at least $10 billion to revive it but to no avail.
Last year, Jaguar's losses more than trebled to
$327 million from $89 million in 2005. Analysts
predict that this year's losses could reach $550
million, followed by a further US$300 million loss
in 2008.
Land Rover, which Ford bought in
2000 for $2.9 billion, was in the red too some
years ago but it bounced back to the point where
it is experiencing strong sales and, unlike
Jaguar, is making money.
Ford's decision to
sell Jaguar and Land Rover together is partly
because the two marques already have strong
management and technical bonds, sharing senior
executives and their products having the same
engines and other components. But the decision has
more to do with Ford's desperation to get the
bleeding Jaguar off its hands. Ford is offering
the Land Rover as a sweetener in a deal in which
Jaguar is estimated to fetch about $1.5 billion.
Tata Motors is part of the sprawling Tata
Group, one of India's largest business
conglomerates with interests ranging from
software, cars, buses and steel to phone service,
tea bags and wristwatches and pulling in revenues
in 2006-07 of $28.8 billion. Earlier this year,
group member Tata Steel bought Anglo-Dutch
steelmaker Corus for $13.2 billion, an acquisition
that made the Indian company the world's
fifth-largest steel maker.
Tata Motors is
India's largest automobile company, with many
firsts to its credit. It developed India's first
indigenously developed light commercial vehicle,
the country's first sports utility vehicle and, in
1998, India's first fully indigenous passenger
car.
"There is a touch of irony in Tata
Motors' bid for Jaguar and Land Rover," a senior
Tata Motors official told Asia Times Online. The
company bidding for two British iconic luxury
automobiles is manufacturing the world's cheapest
car, a $2,500 four-seat sedan that is due to roll
out in 2008. Besides, "an Indian conglomerate is
looking to take over two cars that are regarded as
Britain's legends, its crown jewels". The empire
is striking back.
The prospect of Tata
buying two luxury names while manufacturing a car
that will appear on forecourts with nearly
one-sixtieth the price tag drew criticism from one
of Tata's rival bidders. "I do not understand how
a company that is going to make cars for $2,000
can sell cars for $120,000," Thomas Stallkamp, a
partner with the US private equity firm Ripplewood
was quoted by The Times as saying. What does a
manufacturer of a "people's car" know about
running a luxury icon? Ripplewood was eliminated
early in the race for the marques.
In a TV
interview in August, Tata Group chairman Ratan
Tata said that the interest in Jaguar and Land
Rover is to give Tata Motors scale and global
reach. It would give the Indian company the
"luxury" tag its other vehicles lack.
The
deal will "bolster Tata Motors' image as a global
company and help it go upscale, in much the same
way that previous acquisitions such as Tetley Tea
Ltd and Corus Group did for Tata Tea Ltd and Tata
Steel Ltd," Ravi Krishnan wrote in the Hindustan
Times. "If one wants a brand, which is recognized
as one of the top brands in a space, one has to
play in the premium end of the market ... Mergers
and acquisitions are perhaps the only quick way to
build a brand. To do so from scratch would require
a lot of time and investment," Krishnan quoted
Bharti Gupta Ramola, head (financial advisory
services) at PricewaterhouseCoopers, as saying.
If Tata wins Jaguar and Range Rover, it
will join an exclusive club of luxury carmakers,
but the race is not over yet, even with union
backing. One Equity and Mahindra & Mahindra
are working on building their resources for the
home stretch. One Equity, whose bid is being led
by former Ford chief executive Jacques Nasser,
recently recruited Wolfgang Reitzle, who ran
Ford's Premier Automotive Group from 1999 to 2002.
Mahindra has teamed up with the US private equity
company Apollo Management to strengthen its
financial muscle.
Industry watchers say
the final lap is unlikely to be a repeat of the
nail-biting finish that was witnessed in
finalizing the Corus steel deal. After the meeting
with the union representatives and the British
government, Ford is expected to enter negotiations
with the company with which it wants to partner.
According to a report in the Times of India:
"There is little chance of a grand face-off
between two bidders in a final auction. It also
means the final valuation of the two companies may
be negotiated rather than thrown open for the
highest bidder."
Ford has indicated that
the process will probably be wrapped up by
January. If Tata Motors wins the race, it will
acquire two great brands that are going cheap; it
will also acquire the giant task of resuscitating
them. It is a big chance to take. But Ratan Tata
is not known to be averse to risk. This year, he
co-piloted Lockheed's F-16 and Boeing's F-18
fighter jets at the Aero-India show in Bangalore.
He will be hoping that this daredevil streak will
pay off.
Sudha Ramachandran is
an independent journalist/researcher based in
Bangalore.
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