Tata Motors and Jaguar-Land Rover: Merger & Acquisition
Is it a deal worth it?
1. Background
UK automobile sector is one of the most vibrant and diverse sector. UK is one of the 5 major car manufacturing countries in the Europe(Lockhart 2010). With big brand names such as Rolls Royce, Bentley, jaguar and many more to mention, the industry today is almost as worth as US$ 9 billion. The automobile industry almost constitutes of 11% of the U.K.’s exports. More than 65% of car production in the U.K. in 2006 was exported to the world. It employs almost 820,000 people out of which 180,000 are directly employed with the manufacturing. One of the most amazing things about U.K. is that 6 out of 9 Formula One teams are from the U.K. The manufacturing plant in Sunderland fro Nissan and the Derbyshire manufacturing plant for the Toyota are the Europe’s most productive plants at the moment(Lockhart 2010).
However, the impact of recession 2008-2010 on the U.K. automobile industry has been massive and deteriorating. There ware high numbers of job cuts. The production in many plants had to be stopped in order to stop over-production since the car-makers were struggling to sell of their cars. Figures show that there was a drop in car production by 50% in the year 2009(UKRecession 2009). During this period Jaguar and Land Rover (owned by Ford) were also suffering the huge losses due to recession. In 2008, Tata Motors finally acquired Jaguar and Land Rover from Ford Company for a net consideration of $2.3 billion (Anonymous 2008).
I would like to conduct research in this field because I have always had keen interest in the automobiles industry. It was shocking to see the way U.K. automobile industry has been affected by the recession. Mergers and Acquisition was one of the ways of tackling the problems caused by recession. I would like to study the particular case study of Tata Motors and Jaguar-Land rover M&A in order to see the suitability of this recession coping strategy
2. Preliminary Literature Review
Mergers and Acquisition
The term ‘merger and acquisition’ might seem that they have the same meaning on the desk i.e. two companies who are now operating together in order to achieve a financial or strategic objective. But individually the meaning of these terms differs.
Mergers is basically when a firm absorbs the assets and the liabilities of the selling firm, however the buying might retain it’s original identity. On the other hand, acquisition is basically when a firm purchases the plant or the whole company. They differ in terms of the deal done financially, strategically etc. (Andrew J. Sherman 2005)
Companies enter merger and acquisition deal so that they could enter new market or a new product line. They also enter to spread the risk and cost of new technology, research into a particular field etc. They are highly strategically motivated. Some companies enter the deal in order to change their corporate identity. Companies also plan to enter a deal when they want to come out with an entire service line or a product line in the market. Some companies strongly feel that it is easier and cheaper to buy brand loyalty and customer market share than to build it purely because, brand is an intangible asset on the balance sheet and represents a great deal of value to the company owner. Lastly, it can be the competitiveness of an industry that could force a company in losses to sell it off to another company(Andrew J. Sherman 2005).
Jaguar
William Lyons launched a company with his friend William Walmsley in 1922 called as Swallow sidecar Company. The first car with the name ‘Jaguar’ was ‘the SS Jaguar 100’ and the first sports car was the XK 120. In 1996 Jaguar merged with British Motor Corporation and was together called as British Motor Holding. Then later on, after merging with Leyland, which had already overtaken Rover and Standard Triumph, it came to be known as British Leyland Motor Corporation in 1968. The company was nationalised in the year 1975 due to heavy financial losses. However, Jaguar came out to be as a separate company in the stock exchange, under the many privatisations that took place under Thatcher’s government. In 1989, the Ford made offers to the Jaguar to buy off it’s shares and make Jaguar a part of the new Premier Automotive Group. Jaguar was removed from London Stock Exchange(Hall-Geisler n.d.).
Land rover
The very first time that the idea of producing an adaptable workhorse for farmers was when, Maurice Wilks was using an army surplus jeep. Maurice Wilks was the Chief engineer for Land Rover company and the brother of company Chairman Spencer Wilks. The first 80 inch SWB Land Rover made it’s debut in 1948 in the Amsterdam motor show. It was in 1970 that Range Rover was released. In 1971, 750,000th Land Rover was produced and in 1976, 1,000,000th Land Rover was produced. In 1987, Land Rover hand signed a deal with a Turkish Company Otokar and it was in the year 1988 that British Aerospace brought Rover Group for $150 million. And soon in 1994 Rover was sold off to BMW. And within 5 years, BMW decided that the Rover name had to disappear. It decided to sell off the Land Rover to Jaguar for a whopping US$ 2.7 billion to Ford and Rover cars were given away to a management group called ‘Phoenix'(LandRoverMadness n.d.).
Period after Henry Ford purchased Jaguar and Land Rover
Since Ford purchased Jaguar and Land Rover, they have been closely associated with each other in terms of the distribution networks, production and components facilities as well. In 2007, there were rumours regarding the sale of Jaguar and Land Rover. Ford was looking for potential buyers for Jaguar and Land Rover after 3 years of continuous backdrop in the sales. In May 2007, Land rover built it’s 4,000,000th vehicle. The very next year marked the 60th anniversary for Land Rover but also a landmark decision was taken on this day and that was of selling of Jaguar-Land Rover to Tata Motors for a deal signed for US$ 2.3 billion. It was agreed that Ford will continue to supply engines to them. However, it can be expected that in the medium term or the longer run, Tata shifts the production base eastwards towards India, keeping in mind the low cost base(O’Grady 2008). The CEO of Jaguar Land Rover is Dr. Ralf Speth. He has been appointed in February 2010(Autocar 2010). He is the second CEO of the new group. The first CEO was David Smith after some issues with the work union(Statesman 2010). Recently in February 2010, Tata motors have been successful in getting a loan for US$519 million from EIB, which completes the last element of the funding plan that it had for Jaguar Land Rover(Leahy 2010). In march 2010, the company has recorded a 60% increase in the sales, thus signifying that the situations are becoming much and much better in the worldwide automobile industry. It employs almost 8000 peo-le in the U.K. However, Tata’s CEO, plans to close one of the palnts in the U.K., either it would be Castle Bromwich for Jaguar or Solihull Plant for Land Rover. But this closure will be compensated by Merseyside plant where the production for LRX will take place(Lea 2010).
What’s next?
There were several questions which came to people’s mind after this merger and acquisition took place. There were questions like:-
- Is the U.K. automobile industry now dead?(O’Grady 2008)
- What will happen to the jobs?(O’Grady 2008)
- Will the Jaguar be endangered specie? (O’Grady 2008)
- Can Tata do it?(O’Grady 2008)
- Who owns the British Car industry?(O’Grady 2008)
- Does the British Car Industry still have a future?(O’Grady 2008)
And many more.
3. Justification for the need of Research
The research is needed because the recession had greatly impacted the automobile industry in the U.K. Various U.K. firms reacted in different ways. Some closed down whereas some got involved in Mergers and Acquisition. The Tata Motors and Jaguar-Land Rover merger and acquisition is a classic example of studying the degree of success that M&A could have brought to the automobile firms and it’s suitability in order to deal with recession.
4. Research Questions
- How did recession affect the U.K. automobile industry?
- What is the history of Jaguar and Land Rover?
- Why did Tata bid for loss making Jaguar Land Rover?
- What gains doesTata expect from this deal?
- What is the future of Jaguar-Land Rover after this deal?
5. Research Objectives
- To analyse the affect of recession on the U.K. automobile industry
- To critically analyse the history of Jaguar and Land Rover
- To critically analyse and evaluate the reason for Tata to bid for loss making Jaguar-Land rover
- To predict the gains that Tata can expect from this deal
- To predict the future of Jaguar-Land Rover from this deal
6. Research Plan
6.1 Research perspective:
There is deductive approach with positivist approach to research on one hand and there is inductive approach with interpretivist approach on the other hand. (Jewell 2008)
Since my research would be analysing the cause and effect relationship between the recession and the automobile industry and will also predict the profitability of this deal to Tata, Jaguar and Land Rover
6.2 Research Design:
Keeping in mind Bryman and Bell’s classification, I would be making use of longitudinal design to the relationship between the recession and automobile industry and the M&A as a way of dealing with it.
- I am also using a case study approach using Jaguar-Land Rover and Tata merger and acquisition
6.3 Data Collection Methods:
- I will be using both secondary and primary sources of data for my research.
6.3.1 Secondary data
I have access to various journals, articles, magazines related to automobile industry. Some of the books worth mentioning are Exploring Corporate Strategy, The Motor Industry, Mergers and Acquisitions etc. These are available on the shelf of the library. I will make use of various marketing databases like EBSCO, MINTEL, FAME and SMMT. These are available online.
I will be using the data from the sources to meet the research objectives 1st, 2nd and 3rd.
6.3.2 Primary data:
6.3.2.1 Interview
I shall be conducting a semi-structured interview with Dr. Emanuel Gomes, Senior Lecturer in Corporate Strategy, Coventry University. The interview would be conducted 1:1 basis. The questions for the interview will be designed before hand, however, there would be enough room left for more questions to be asked as and how the interview takes place.
I will be using Weft QDA software to analyse the results of the interview. The software is not difficult and complicated. It is user friendly.
7. Limitations
Generalisability
Since this research is being undertaken particularly for automobile industry, it would not be right to apply the same branding services process to any other industry. Hence, the generalisability is low.
Reliability
It is not important that the degree of success and benefits of Mergers and acquisition reaped this time would be the same if a company merges later on after few years. This research will hold true for this particular point of time. And various changes will have to be made and considered if the findings were to be applied after a few years.
Validity
Since we are making use of highly dependable and official resources, it would be right to say that the research conducted would be valid in relation to the topic.
8. Research Ethics and Plagarism
I have fully understood the ethical instructions and I will complete the ethical compliance form. I will consult my supervisor in each and every step of my research and will not take any step without his/her consent. I will make the interviewee aware of the research objectives and get a consent form signed by him. I will keep all the personal information provided by the respondent confidential.
I will abide by the Data Protection Act that will apply to the secondary sources of data.
9. References
Andrew J. Sherman, M. A. H. (2005). Mergers and Acquisitions from A to Z
Anonymous. (2008). “Tata Motors completes acquisition of Jaguar Land Rover.” from http://uk.tata.com/media/releases/inside.aspx?artid=WmK+xPYHgZ8=
[accessed on 12/04/2010].
Autocar. (2010). “Jaguar Land Rover’s new CEO.” from http://www.autocar.co.uk/News/NewsArticle/AllCars/247622/#[accessed on 9/04/2010].
Hall-Geisler, K. (n.d.). “The Cat’s Meow: A History of Jaguar.” from http://exoticcars.about.com/od/overviewsofmaker1/p/JagHistory.htm. [accessed on 9/04/2010].
LandRoverMadness. (n.d.). “Land Rover’s History.” from http://www.lr-mad.co.uk/history.html[accessed on 10/04/2010].
Leahy, J. (2010). “Tata secures �340m for Jaguar Land Rover.” from http://www.ft.com/cms/s/0/43113fbe-2214-11df-98dd-00144feab49a,dwp_uuid=89fe9472-9c7f-11da-8762-0000779e2340.html[accessed on 14/04/2010].
Lockhart, I. (2010). “Automotive.” 2010, from https://www.uktradeinvest.gov.uk/ukti/appmanager/ukti/sectors?_nfls=false&_nfpb=true&_pageLabel=SectorType1&navigationPageId=/automotive[accessed on 18/04/2010].
Lockhart, I. (2010). “Key Facts.” from https://www.uktradeinvest.gov.uk/ukti/appmanager/ukti/sectors?_nfls=false&_nfpb=true&_pageLabel=SectorType1&navigationPageId=/automotive[accessed on 18/04/2010].
O’Grady, S. (2008). “The Big Question: As Jaguar/Land Rover is bought by Tata, is the UK car industry finished?”, from http://www.independent.co.uk/news/business/analysis-and-eatures/the-big-question-as-jaguarland-rover-is-bought-by-tata-is-the-uk-car-industry-finished-801176.html[accessed on 19/04/2010].
Statesman, N. (2010). “Jaguar Land Rover CEO quits.”
UKRecession. (2009). “UK Car industry suffering.” from http://www.ukrecession.com/2009/04/uk-car-industry-suffering/[accessed on 19/04/2010].