Pre-acquisition and post-acquisition of Tata and JLR

Pre-acquisition

JLR was originally a part of Ford Motor Company's Premier Automotive Group (PAG)
division, which also included brands such as Aston Martin, Volvo, and Lincoln. However, by
the mid-2000s, Ford was struggling financially and looking to streamline its operations. As
part of this effort, Ford decided to sell off its PAG brands, including JLR.

Although LR was a well-known company with a lengthy history, its financial situation was
dire. JLR had been losing money in the years before to the acquisition, raising doubts about
its long-term survival. If anyone would be willing to take on the faltering automaker, some
industry analysts questioned.

Tata Motors is a division of the Indian conglomerate Tata Group, which also includes
holdings in the steel, energy, and hotel sectors. Trucks, buses, and other commercial vehicles
were the company's main areas of interest in India. But, the business recognised a chance to
grow its automotive division by acquiring JLR.

In 2008, Tata Motors paid Ford $2.3 billion in cash to buy JLR. In June of that year, the
agreement was completed. Tata Motors' acquisition of a struggling automaker with a well-
known brand but serious financial difficulties was viewed as a risky decision on their part.

Tata Motors was hopeful about JLR's prospects despite the difficulties. Tata Motors now has
access to the luxury automotive market and a significant presence in both Europe and the US
thanks to the acquisition. Also, it gave Tata Motors the chance to benefit from JLR's
experience in fields like engineering, design, and technology.

After the purchase, Tata Motors significantly increased its investments in JLR. The
corporation made investments to increase JLR's production capacity, create new models, and
enhance quality and dependability. JLR's fortunes recovered as a result. Sales and
profitability rose for the business, and JLR rose to prominence in the world's premium
automobile market.

Post-acquisition

On June 02, 2008, India-based Tata Motors completed the acquisition of the Jaguar and Land
Rover (JLR) units from the US-based auto manufacturer Ford Motor Company (Ford) for
US$ 2.3 billion, on a cash free-debt free basis. JLR was a part of Ford’s Premier Automotive
Group (PAG) and were considered to be British icons. Jaguar was involved in the
manufacture of high-end luxury cars, while Land Rover manufactured high-end SUVs.
On acquiring JLR, Rattan Tata, Chairman, Tata Group, said, “We are very pleased at the
prospect of Jaguar and Land Rover being a significant part of our automotive business.
We have enormous respect for the two brands and will endeavor to preserve and build
on their heritage and competitiveness, keeping their identities intact. We aim to support
their growth, while holding true to our principles of allowing the management and
employees to bring their experience and expertise to bear on the growth of the
business.” Ford had bought Jaguar for US$ 2.5 billion in 1989 and Land Rover for US$ 2.7
billion in 2000. However, over the years, the company found that it was failing to derive the
desired benefits from these acquisitions.

After the acquisition was over in June 2008, the global meltdown and high fuel
prices, especially after September 2008 with vehicle financing and demand drying up,
impacted auto industry worldwide, including Jaguar Land Rover. The volumes over the 10
months post acquisition reduced by 32% as compared to the comparable period in the
previous year resulting in a Loss before tax of GB £ 281 million. In response Jaguar Land
Rover has taken prompt action to reduce inventory, improve working
capital, reduce investments and payroll costs including more than 2000 job losses. Sales of
the Jaguar and Land Rover brands declined by 20% and 51% respectively from October
2008 – March 2009 as compared to the corresponding period in the previous year as the
demand for premium vehicles declined.

Forming a part of the purchase consideration were JLR’s manufacturing plants, two advanced
design centers in the UK, national sales companies spanning across the world, and also
licenses of all necessary intellectual property rights. Tata Motors had several major
international acquisitions to its credit. It had acquired Tetley, South Korea-based Daewoo’s
commercial vehicle unit, and Anglo-Dutch Steel maker Corus. Tata Motors long-term
strategy included consolidating its position in the domestic Indian market and expanding its
international footprint by leveraging on in-house capabilities and products and also through
acquisitions and strategic collaborations.

After acquiring the Jaguar and Land Rover Tata Motors top management was quite confident
and pleased by looking at its prospect in automotive industry in the world. The top
management had realised that they have created an enormous scope for the company which
will help them to build it their competitiveness over their competitor in the global market and
at the same time they will able to keep their identities intact as well. The brand value of Tata
Motors will move in the opposite direction with immense support from these global players.
Tata Motors aim to support their growth by holding their basic business principles of
allowing the management and employee to bring their experience and expertise to grow
further not only in Indian market but also in the global market as well. With the help of this
business deal Tata Motors gained many business advantages.

Tata Motors also got to advance design studios and technology as part of the deal and with
the help of that they would able to access the latest technology which would eventually allow
Tata to improve their total products in Indian market. With the help of this acquisition they
are trying to build it a different business synergy altogether to enhance their sustainability in
the global market for the long run. In the long-run Tata Motors will definitely diversify its
dependence on Indian market and slowly they will try to strengthen their footprint in the
global market with the help of such large scale international brands.

There is a lack of access to credit to repair the bridge loan of 3 billion USD Tata Motors was
facing various problems related to cash liquidity and have negative working capital after the
acquisition of Jaguar and Land Rover. Their problem areas don't stop here because in relation
to that their ratio had increased over five years’ time and they have negative interest coverage
which clearly indicates that the company was having serious problems in the payment of
bridge loan.

Tata Motors was actually finding it quite difficult to access the credit and raise fund from the
stock market due to the tight liquidity conditions that they started experiencing due to this
acquisition. Depressed stock market and the lack of investors’ confidence had also created lot
of issues for Tata Motors. Beside all these elements there is lack of working capital which
had actually caught them into trouble to repay the bridge loan of 3 billion USD which
actually used to finance the acquisition of Jaguar and Land Rover.

Legal issues in acquiring JLR

In 2008, Tata Motors acquired Jaguar Land Rover (JLR), which raised a number of legal
concerns, particularly those relating to intellectual property rights and regulatory compliance.

1. Regulatory Compliance: The acquisition was subject to regulatory compliance in the

UK, the US, and India, among other countries where JLR conducts business. The
European Union, the US Department of Justice, and the Indian Competition
Commission were among the organisations from which Tata Motors needed
regulatory permissions.
2. Intellectual Property Rights: Many intellectual property rights, including
trademarks, patents, and copyrights, were acquired as part of the acquisition. Tata
Motors needed to make sure that it had all the rights and authorizations required to
produce and market JLR's goods.
3. Contractual Obligations: JLR's agreements with suppliers, dealers, and other
stakeholders were among the contracts that Tata Motors had to make sure it complied
with in connection with the acquisition.
4. Employee Issues: As part of the transaction, Tata Motors acquired the employees of
JLR. In order to transfer employees, Tata Motors had to abide by all applicable
employment laws and rules, including those governing the payment of wages and
benefits.
5. Financial issues: As part of the acquisition, Tata Motors received the assets and
liabilities of JLR. In order to finance the acquisition and manage JLR's financial
obligations, Tata Motors had to make sure it had the appropriate financial resources.
Tax implications during the acquisition:

Ford sold JLR to Tata Motors for $2.3 billion in 2008, and as part of the agreement,
important assets, such as manufacturing facilities, intellectual property, and distribution
networks, were also transferred. Stamp duty, value-added tax (VAT), and corporate tax were
consequently applied to the transaction.

The buyer is responsible for paying stamp duty, which is a tax assessed on the transfer of
shares or other securities. The stamp duty paid by Tata Motors for Tata's acquisition of JLR
came to almost £90 million.

The value-added to goods and services is taxed as a consumption tax known as VAT at each
stage of production or distribution. For the JLR acquisition, professional fees paid by the
parties, such as legal and financial consulting fees, were subject to VAT. Tata was
responsible for paying almost £18 million in VAT.

A tax imposed on a company's profits is called a corporate tax. The tax owed in the JLR
takeover case was based on the earnings JLR made in the UK. Due to the global financial
crisis, Tata Motors recorded losses in the initial years following the acquisition and, as a
result, did not pay any corporate tax in the UK.

Financial implications during the acquisition

Tata Motors' acquisition of Jaguar Land Rover (JLR) had a huge financial impact on both
companies. Some of the major implications are as follows:

1. Cost of acquisition: In 2008, Tata Motors paid Ford Motor Company $2.3 billion to
acquire JLR. For Tata Motors, which at the time was a relatively minor player in the
global automotive sector, this represented a considerable expense.
2. Debt burden: Tata Motors had to incur a large amount of debt to pay for the
acquisition. The company's credit rating and balance sheet were put under strain as a
result.
3. Investment in JLR: Following the takeover, Tata Motors made significant
investments in JLR to enhance its product line and production methods. This required
additional capital investments and cash inflows, which had an impact on Tata Motors'
financial situation.
4. Revenue and profits: The acquisition of JLR greatly increased Tata Motors' revenue
and profits. Tata Motors was able to grow its global presence and boost its market
share thanks to JLR's premium brand image and solid presence in important markets
like China and the UK.
5. Exchange rate risk: Tata Motors is an Indian corporation, and its financials are
expressed in Indian rupees, thus there is an exchange rate risk. Nonetheless, American
dollars and British pounds make up the majority of JLR's earnings and profits. Tata
 Motors is subject to exchange rate risk as a result, which may have an impact on its
earnings and cash flows.
6. Economic downturns: The automotive industry was severely impacted by the world
financial crisis that started soon after the acquisition. Due to this, JLR's sales and
profitability suffered, which in turn had an effect on Tata Motors' financial results.