Tata Motors Ltd will pay $2.3 billion to buy Jaguar and Land Rover from Ford Motor Co, in a takeover intended to give a major boost to the Indian automaker’s image abroad.
The deal announced on Wednesday comes after months of negotiations over the iconic luxury brands, and gives Tata — long known as a maker of workhorse trucks and mass market cars — an expansive product range with the ultra-cheap Nano at the bottom and Jaguar at the top.
It also adds to the national pride of many Indians who see such acquisitions as a reflection of India’s economic rise. Such excitement often gets amplified when the acquisition target is in Britain, the former colonial master.
“This is a major landmark for Indian industry,” said FICCI. But the takeover, the latest in a string of aggressive overseas acquisitions by the Tata group, has also stoked concerns about the future of the finances of the country’s largest business conglomerate.
The deal comes at a time when the credit-market crisis in the US and elsewhere has raised borrowing costs and deterred deal-making.
Credit rating agency Standard & Poor’s placed Tata Motors on review for a possible downgrade in January from its current high-yield “BB+” rating, citing the potential increase in its debt load from the acquisition of Jaguar and Land Rover.
Shares of Tata Motors fell sharply in early trading Wednesday as the news came in, but recovered later after details of the deal showed Ford had agreed to contribute $600 million to fund pension liabilities of employees at Jaguar and Land Rover plants.
Still, the purchase price amounts to almost a third of Tata Motors’s annual sales of $7.2 billion last year.
The company has lined up $3 billion in loans to finance the acquisition and the manufacturing of the Nano.
There have also been apprehensions over how the Indian company, which has only about a decade's experience in carmaking, would manage the brands that had failed Ford.
"We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact," Chairman Ratan Tata said as he announced the deal.
Ford, on its part, gets to shed the money-losing Jaguar brand, and gains from cash infusion as it attempts to bounce back from combined losses of more than $15 billion over the past two years.