Land Rover & Jaguar Deal to Mark Indian Auto Sector’s First Billion Dollar Acquisition

The Indian automotive sector is under-going a fundamental shift as companies set out to unlock the benefits of global scale of operations, propelled by ambitions to gain in-roads into the premium league by acquiring state-of-the-art engineering platforms, future proof technology masterpieces and iconic brands patronized by a niche customer segment.

The outcome of the bidding war which will be known by the end of the week for Jaguar and Land Rover, the U.K. based iconic marques owned by Ford Motor Company, the U.S. based world’s third largest automaker, for an estimated price of approximately $2 billion, which features Tata Motors Ltd, India’s biggest automobile company, and Mahindra & Mahindra Ltd, tractor & utility vehicle manufacturer is symbolic of the evolving Indian businesses making a mark in the global market place.

Tata Motor’s parent company Tata Group, with revenue of $55 billion and equivalent to about 5.5% of the country's GDP, is not new to such inorganic growth that has eased the group’s access to new markets, product categories, technology and world-class brands. Tata Motors' international footprint includes Tata Daewoo Commercial Vehicle in South Korea; Hispano Carrocera S.A., a bus and coach manufacturer in Spain in which the company has a 21% stake; a joint venture with Marcopolo, the Brazil-based body-manufacturer of buses and coaches; and a joint venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market pickup vehicles in that country.

Tata Motors that has been facing critical reviews concerning quality and reliability with its passenger cars ‘Indica’, the small car that it marketed badged as CityRover as per tie-up with British automaker MG Rover in Europe, with the two cult luxury brands Land Rover and Jaguar in its armory will see itself take the first steps in to the un-explored premium segment and graduate to state-of-the-art engineering expertise from a combined workforce of 20,000.

With the deal expected to go to the Indian conglomerate, the moment will be historic as it will mark the automotive sector’s entry into the elite billion dollar acquisitions club.

The sector has already exhibited growing merger & acquisition (M&A) deals worth more than $633 million from 20 deals so far this year, i.e. surpassing the value of deals done by the sector in the whole of last year at $517 from 23 deals.

The other reason why Jaguar-Land Rover deal will be significant is that it will further reinforce the prominence of the Indo-U.K. merger & acquisitions deal activity which has already seen the country’s two of the largest deals – the acquisition of Hutchison Essar Ltd India’s second largest GSM mobile service provider by the U.K.’s Vodafone Group Plc and the acquisition of the U.K.’s largest steel maker Corus Group Plc by India’s Tata Steel Ltd.

Key to such billion dollar acquisitions is the management of the post acquisition integration costs. As skepticism looms large among industry analysts with regards to the loss making Ford’s marques - Jaguar and Land Rover, one company I would bet on being able to get the integration cost down is Tata Group. It is a company that has been brilliant in execution pretty much so far.

Of the $46 billion worth of cross-border M&A deals so far this year, the U.K. contributed to about 40% of all overseas acquisitions by Indian companies (Outbound) in deal value and about 83% of the deals clinched by overseas companies in India (Inbound).

Tata Group has been active in the U.K. market for long. The group had previously acquired U.K.’s top steel maker Corus Group Plc after intense rounds of auction proceedings with rival Brazilian steel company, Companhia Siderurgica Nacional (CSN). Prior to that, the group had acquired U.K.-based Tetley Group, then the world’s largest manufacturer of tea, for $407 million in February 2000. The group has already spent more than $15 billion to fulfill its inorganic growth strategies and the acquisition of Land Rover and Jaguar will likely be the second most expensive buy for the group after Corus.

The investments by India Inc. in Britain during the fiscal year 2006-07 has created 5,130 jobs, second to the U.S., according to the U.K.’s Department of Trade and Industry. In terms of the number of new projects, India has been ranked third with 69 new projects, after 540 new projects of the U.S. and 95 new projects of France.

Indian investment in the U.K. had gone up 111% to 76 projects, creating almost 4,000 jobs during 2005-06. The Indian investment has contributed $67 million (£33 million) to the London economy in 2006-07, according to Think London, an agency promoting investment into the city.