Mergers and Acquisitions the Most Recent Worldwide Essay

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Mergers and Acquisitions

The most recent worldwide economic meltdown that began in 2007 decimated the auto industry. Chrysler and GM were two of the 'big three' that did not escape without filing bankruptcy and restructuring; shedding thousands of jobs and debts in the process. Ford managed to escape this fate and the accompany government take-over but also suffered tremendous loss in terms of sales and employees. At the height of the recession sales of U.S. vehicles had plummeted by nearly a third; with GM falling by 45%, Ford 30% and Chrysler 35% (BBC News online, 2009).

If anyone was projecting the recession; their warnings went unheeded while investing continued at breakneck speed until the economy sputtered to a standstill. It resulted in some formidable takeovers including the loss of the Jaguar and Land Rover luxury brands by Ford to Tata Motors Ltd. (TML). The former is known for its luxury passenger cars and the latter for its opulent SUVs. Tara, an Indian auto manufacturer, acquired the brands through a cash transaction of $2.3 billion (TML press release, 2008). The deal rested on Tara receiving approval for fusion control through the 'Merger Law'. Tata Motors supplies a variety of vehicle products including buses, commercial vehicles and passenger cars. Its audience is overwhelmingly buyers in India (89% of all revenues); their base of operations.

Analysis of the motivations of Ford and Tata

Ford's motivation for acquiring Jaguar and Land Rover; a UK-based luxury car manufacturer; was to make a dramatic entrance into the luxury car market; dominated in 1989 by German automakers. Ford rolled out the S. model of the Jaguar in 1998 and an X model in 2001. Neither was successful; Jaguar was showing continuous losses and a manufacturing plant was closed in response. By 2007 they had lost 17% of their market share. Conversely, Land Rover's sales and profits soared - reaching worldwide records in 2006. Meanwhile as the world was poised to enter a dramatic and devastating economic downturn Ford was facing multiple challenges. Fuel prices were increasing as were the healthcare and legacy costs to support their aging workforce. At the same time, all U.S. auto manufacturers were facing a decidedly shrinking share of the market. Even Ford's cash cow - Land Rover - was putting up weak sales and profits numbers. Finally, the Asian auto market - ever the aggressive competitor was turning out vehicles with greater fuel efficiency that appealed to Ford's consumers - leaving Ford 'in their rearview mirror' (so to speak). Suddenly, Ford was operating from a depleted financial position and by 2006 it reported its worst annual loss of $12.7 billion (Srivastava, 2009). To remain viable Ford had no choice but to divest itself of Jaguar and Land Rover; a move they completed when they sold the brands to TATA Motors in 2008.

TATA's first foray into the European global market with its City Rover model was an abject failure. Principles of the organization realized that its success to become a contender in the luxury passenger vehicle market likely lay in its ability to create a singular brand identity; a task they completed with the acquisition of JLR. The chart below shows the breakdown of the industry and the Tata motors percentage within the passenger vehicle market in India thus the success recorded by Tata as depicted in the chart supports its decision to go for the said acquisition of JLR.

Table: Indian Passenger Vehicle Market 2003-4 (Salwan, 2011)

Their execution was achieved with Land Rover but; as with the former owner; Jaguar continued to be a drag on their achievements. Remember that Ford had previously invested $12.7 with little improvement. It appeared TATA was facing a similar fate; and industry experts were quick to weigh in. In one assessment (Brown Robin & Fogarty Justin, 2009) the authors noted Ford was much more experienced in the global automotive market than TATA. This gave Ford an edge yet they were still unable to make a go of Jaguar. Meanwhile TATA lacked marketing and production expertise to compete in European and even Indian markets; witness the failed acquisition of City Rover and their inability to master the differences in carbon emission rules among markets. A second study (Paul Newton) claims the acquisition of Land Rover was ill-advised and will not benefit TATA in the long-term. The reason for this is two-fold. First, the global economy was on the precipice of disaster; a fact that impacted the breadth of industries around the world - not just the auto industry.

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Too, the largest customer base - Americans and Europeans - were showing signs of moving away from large SUVs into more economical and environmentally conscious vehicles.

Still another industry analyst was quick to point out that the Jaguar brand had been positioned to compete against much more esteemed companies including Lexus and Mercedes Benz (M.Anand, Outlook Business, 2008). Both are considered the 'blue bloods' of luxury cars and Jaguar was simply not established enough to be a contender. However, one author who reviewed the data offered that the purchase of Jaguar and Land Rover could actually be beneficial for TATA in that they would use these vehicles as models in the quest to learn how to build quality and technologically advanced automobiles and SUVs (R.Duane, 2008). At the same time Mike Peng (2008) opined that TATA's decision to move the manufacturing of JLR to its homebase in Pune, India was economically strategic because it would lower production costs considerably. And, TATA had benefited fiscally from the purchase of JLR in the Chinese auto market; finding itself with $2 billion in revenues by 2009. In their estimation the acquisition was nothing short of a coup and the brands should be nurtured; a point reiterated in another industry review of the acquisition. Another report went further; stating that TATA had the capability to improve Jaguar's performance with further design and branding investments (Gautam Kumar & Pradeep Jain, Business Standard, 2009). The table below however depicts that the acquisition of JLR was again strongly supported by Tata Motors prior success with the commercial trucks and cars.

Table: Indian Commercial Vehicle Market 2003-4 (Salwan, 2011)

Ford and TATA are two wholly different auto manufacturing entities. Ford is renowned globally but TATA owns a number of reputable brands well-known in other countries. They are a regional player that made its wealth through catering to the low and middle economic levels of India (Robin and Justin, 2009). It would be fair to say that India is its marketing 'bread and butter'. Now, as it looks to expand into the European market company principles are aware of their lack of expertise in developing a market base and becoming competitive in this new market. The point is that many feel if an internationally savvy marketer such as Ford was unable to save Jaguar; the less experienced Tata Motors will experience the same fate. Moreover, there are those that think TATA moved too fast and will trip over themselves as a result.

Yet, TATA's seeming objective was to find easy egress into the luxury car market which they thought they'd done with the purchase of JLR. The employed the strategies exhibited in the table below to follow through on the successful acquisition and aimed to continue their success on an upward spiral. Instead, they have learned it is a fiercely competitive arena and they must butt heads with the likes of Lexus and Mercedes; both of whom have all but perfected the art of luxury car manufacturing, marketing and sales. Even if this were not true; TATA seems to have made an error in judgment when turning to Jaguar as their premier vehicle for luxury car sales. The image of this brand has been in decline for years and it would appear that TATA can expect more of the same in the next decade. It is a long road back for Jaguar through image and manufacturing repairs that may never pay off.

Table: Multinational Strategic content 2009-2010 (Salwan, 2011)

Unfortunately for TATA the once 'sure bet' in the Land Rover brand is beginning to show signs of waning as well. Land Rover was once the premier sports utility vehicle but recent research shows a sharp decline in demand (IHS Global) which could prove disastrous for TATA. Recommendations for how to respond to this include diversifying the LR business and replacing it with the production of lower class vehicles. It is not lost on TATA or industry experts that the prospect looks to be an expensive venture for the auto manufacturer - in technological investments alone - never mind all of the associated costs of bringing a vehicle to market. Peng (2008) noted that in the flush of the purchase Tata Motors likely believed that by moving JLR production to India they could save billions. However, this was a short-sighted plan; as the cost to translate the technological requirements of the Indian market to that of Europe.....

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