HOUSE OF TATA :

ACQUIRING A GLOBAL
FOOTPRINT

A ru n M e n o n
A m it Ta rn e ka r( 3 2 1 9 8 )
H a rsh D o sh i( 3 2 1 1 9 )
M a n so o r K h a n ( 3 2 1 7 2 )
N ikkita Te kriw a l( 3 2 1 4 5 )
V a ib h a v V ich a re ( 3 2 3 0 2 )
V e zo to T h e lu o ( 3 2 3 0 0 )
 Background Tetley-Tata deal
• Feb 2000: Acquisition of UK Based Tetley by
Tata tea
• Leveraged buyout ( Tetley 3 times the size of
Tata tea)
• Tetley deal : 271 million pounds
• 70 m pounds contributed by equity and 45 m
pounds by raising GDR
 Rationale behind Tetley Acquisition
• Growth in tea industry less in India, so need to
explore newer markets
• Need to change from a commodity tea producer
to a branded tea company
• Tetley's Global presence and leading brand -
Market leader in Britain and Canada and a
popular brand in the United States, Australia
and the Middle East
• Tetley not a part of any large consumer good
conglomerate – ease of acquisition
• Provided insulation it needs from low commodity
prices in India to higher-priced and more
evolved global tea market
 Comparison of Tata Tea & Tetley
(3/31/00) – (3/31/01) Tata Tea Tetley

Turn Over $207 million $417 million

Operating Profit $36.0 million $42.6 million
Employees 59,740 1,100
Tea Estates 54 0
Key Markets India Britain, Canada, Australia,
United States
 Value chain before Acquisition
TATA TEA: Developing Market


•
•


TETLEY: Developed Markets


 Operational synergies
Merger Tata tea –pre Tetley –pre Consolidated –post
implicatio acquisition acquisition acquisition
nPosition 40 % 100 % turnover Company has move up the
in the turnover from packet value chain-80 % turnover
value from packet tea/tea bags from packet tea/tea bags
chain tea/tea bags
Increased Produced 90 Outsourced entire 70 % of Tata tea req.
outsourcin % of the tea tea req. from 35 outsourced from 20
g requirements countries countries ( reduction of
in house (procurement of risk arising out of
3m kg of tea fluctuation in production
Predictabl Margins Margins were not
every week) Margins hedged
arising out of different
e margins highly correlated to tea factors
correlated cycles
Global with tea
Domestic UK and US Global presence
footprints cycles
operations accounts for bulk
 Operational synergies
• Pooling of global talent within Tata Tea’s
businesses to develop and execute an
integrated business plan
– Management and expertise in Teltey
retained
• Cross-utilisation of distribution channels for tea,
coffee sales resulted in increased profitability

REVENUES POST ACQUISITION
 Synergies from the deal
• Tata was one of the lowest cost steel producers & Corus
was fighting to keep its productions costs under control .
• Tata had a strong retail and distribution network in India
and SE Asia. Hence there would be a powerful
combination of high quality developed and low cost high
growth markets
• Technology transfer and cross-fertilization of R&D
capabilities .
• There was a strong culture fit between the two
organizations both of which highly emphasized on
continuous improvement and Ethics.
• Economies of Scale.
• Increase in profitability.
• Backward integration for Corus and Forward integration for
Tata Steel.
•
REASONS FOR ACCEPTING THE DEAL

TATA STEEL
 CORUS
 To tap European Mature Market . • To extend its Global reach
 Cost of acquisition is lower than through TATA.
setting up of Green field plant
& marketing and distribution
• To get access to Indian Ore
channel . reserves, as well as virgin
 TATA manufactures Low Value , long market for steel.
and flat steel products , while • To get access to low cost
Corus produce High Value materials.
Stripped products .
• Saturated market of Europe.
 Helped TATA to feature in Top 10
players in world .
• Decline in market share and
 Technology Benefit .
profit.
 Economic of scale .
 Corus holds number of patents and
R & D facilities .

•
 Post Acquisition
Strategies
INTEGRATION EFFORT
• Tata steel's Continuous Improvement Program ‘Aspire’ with
the core values :Trusteeship, Integrity, respect for
individual, credibility and excellence.
• Corus's Continuous Improvement Program ‘The Corus Way’
with the core values : code of ethics, integrity, creating
value in steel, customer focus, selective growth and
respect for our people.
• As the core values of the two companies were same so Tata
used ‘Light Handed Integration Approach’.
• Top management of the company remained same.
•
 Pitfalls of the deal
• High value paid. Approximately 7.7 times its
Enterprise Value.
• Corus’ EBITDA was at 8% which was much lower
as compared to Tata Steel’s 30%.
• Debt of US $ 6.14 was raised against the cash
flows of Corus. It was a risky proposition.
• Tata’s debt equity ratio was adversely affected to
2.74:1 from 1.1 which it was maintaining
earlier.
• Fast consumption of Tata Steel’s captive iron ore
reserves as production capacity increased from
5.3 million ( estimated for 50 years at this
capacity) to 27 million tons of steel per annum.
 The Road Ahead
• Integration has to be fast and efficient.
• Increasing reach to joint entity to 4
continents and 45 countries including
high value market of Europe.
• Increasing the EBITDA to 25% for joint
entity by executing Tata steel’s
brownfield and greenfield projects well in
time.
• Increasing the capacity of the company
beyond 50 million tons by 2015 so as to
become one of 3 top steel producers in
the world.
 PRE-ACQUISITION OPERATIONS

TATA MOTORS
 JAGUAR LAND ROVER


• Huge Loss of $105 Million • Ford who owned both Jaguar

in 2000-01 and Land Rover had Lost
$12.6 billion in 2006
• Challenge of De-risking the
• Both Jaguar and Land Rover
cyclical nature of its part of Premier
commercial truck Automotive Group ( PAG ).
business PAG post a loss of $4.8
billion loss in 2004-06
• Pressure to Internationalize
because of Intensifying • Jaguar Biggest contributor of
foreign competition loss.
• Strong Union served an
• Tata Motors needed to ultimatum opposing the
develop more advanced closing down of the three
products to stay at par factories by any acquiring
with its competitors company
• Product Target was mainly • Jaguar and Rover shared
factory in Liverpool as
on the bottom of the well as technology and
Pyramid market.
 TATA MOTORS GROWTH STRATEGY

 1984 : India’s 1st LCV (407 truck)

1996 : India’s 1st SUV (Safari)
 Growth Strategy 1998 : India’s 1st Passenger Car (Indica)
• To consolidate position in
2004 : Acquisition of Tata Daewoo, Korea
the market and
expand international 2005 : India’s first mini-truck (Ace)
foot print through 2005 : Acquisition of stake in Hispano,
development on new Spain
2007 : Formed an industrial JV with Fiat
products by
2007 :JV in India with Marcopolo of Brazil
 - Leveraging in
2007 : JV in Thailand with Thonburi
house capabilities
 - Acquisition and 2008 : People’s car – Tata Nano
strategic collaborations 2008 : Acquisition of Jaguar Land Rover
to gain complementary
capabilities

 WHY ACQUIRE JLR ?
1 Long term strategic commitment to automotive sector

2 Opportunity to participate in two fast growing auto segments (premium and small cars)
and to build a comprehensive product portfolio with a global footprint immediately
3 business diversity across markets and product segments

4 Unique opportunity to move into premium segment with access to world class iconic
brands
4a Land Rover provides a natural fit above TML’s Utility vehicles/SUV/Crossover
offerings for the 4x4 4a premium category
4b Jaguar offers a range of “Performance/Luxury” vehicles to broaden the brand portfolio

5 Sharing of best practises between Jaguar, Land Rover and Tata Motor in the future

6 Long-term benefits from component sourcing, low cost engineering and design services
 POST-ACQUISITION OPERATIONS

TATA MOTORS
 JAGUAR LAND ROVER


• Total Revenue from the • Easier Credit availability from

Brands as on 2008 both Indian as well as
was US$12-13 billion foreign bank to support
cost cutting measures,
• Tata Motors gets access increase volumes and more
to technologies, intensive research
especially for off- • New Management team with
roading, such as the more emphasis on
Terrain Response improving the companies
systems of Land Rover operation
and other resources at • 2010 Increase
Increased Sales
Jaguar
Jaguar 24919 31
% %
Land 67840 52 %
• Tata Global by increase Rover
by 29% at 85,114
vehicles, August 2010
Thank You