TATA

Madhura D(32118)| Komal J(32125) | Vikram N(32131) | Rahul R (32136)|Bikirno R(32137) | S. Karthik(32143)|Ravneet K(32222)| Aditya R (32236)

Agenda

• Major acquisitions and strategies used– Tata Tea- Tetley– Tata Motors- JLR– Tata Steel - Corus

• Group strategy

Objectives of acquisition

• Overall slow growth of the tea market in India • Need to transform itself into a branded tea company• Access to foreign markets such as United States, Canada,

Europe, and Australia• Combined entity would be the second-largest branded tea

portfolio in the world with a foothold in 35 countries. • Tetley - the only global tea brand not owned by a large

consumer goods conglomerate.• Competition faced in India, ex- HUL

Synergies

Purchasing• Tetley bought about 8,000,000 kgs of Indian teas annually from

fragmented sources• It was envisaged that Tata Tea could help in sourcing or supplying

Tetley’s requirements of Indian teas

Technology

Brands• Markets where one or the other company had worked singly could

be developed jointly, leveraging the internationally known Tetley brand name

• Tata Tea to help launch Tetley brand in India, Middle East, Russia

• Tetley would give Tata Tea access to specialty products such as: flavored teas, herbal teas, organic teas, and decaffeinated teas

• These introductions could be useful additions at the top end of the Indian market

Synergies

Cost synergies

• Both Cos. could relocate manufacturing of teas and utilize a global supply chain approach and common platforms for the infotech, MIS, & fin functions

• Virtual teams, using IT, could work together without physically moving across country boundaries

Marketing & Packaging

• Tata Tea also hoped to gain significant marketing and packaging expertise from Tetley which had 60 teas in its portfolio and sold 2.5 billion tea packs (5625 tonnes) every year

• Tetley also had significant experience making tea bags, the preferred method for making tea in the west

Infotech

• Opportunity for Tata Tea to improve its infotech infrastructure, improving connectivity to remote plantations and adopting an ERP system to create a global supply chain based on Tetley’s SAP-based ERP solution

Tata and Tetley Comparison

31/3/2000 – 31/3/2001 Tata Tea Tetley

Turnover $207 mn $417 mn

Operating Profit $ 36 mn $ 42 mn

Employees 59,740 1,100

Tea Estates 54 0

Key Markets India Britain, Canada, Australia, USA

Strategy used by Tata Tea

• Leveraged Buyout (LBO) mechanism – reduction in upfront cash required

• Assumption - Cash flows from Tetley would repay the leverage over time.

• Tata Tea floated an Special Purpose vehicle (SPV) - Tata Tea Great Britain Ltd., which was a 100% subsidiary of Tata tea

• Cautious approach towards integration

Post Merger Strategy

• The only areas where Tata Tea and Tetley worked closely together were in the areas of tea buying and blending

• The entire Tata Tea buying and blending team was trained in Tetley methods and the two companies began operating seamlessly in this area

• The Tatas decided that the best way to integrate was not to integrate initially but to maintain a “joint-venture” type of arrangement

• Therefore, the existing management of Tetley was retained

Mr. R. K. KrishnakumarChairman, Tata TetleyCEO, Tata Tea

Commenting on the synergies soon after the acquisition, R. K. Krishnakumar, chairman of Tata Tetley and vice chairman and CEO of Tata Tea, told the Economic Times, “I see us fusing all these entities into one super global company, … seamlessly operating as one entity, deriving all the efficiencies of integration and imparting the necessary aggression in the marketplace to gain market share. The synergies between the two companies are very strong and bringing them together does make sense. But this is only at a conceptualization stage. We aren’t working on anything. It may take a while to happen.”

Integration Problems – 1/2

Size

• Tata Tea was half the size of Tetley in terms of revenues and number of upper management

• Tata Tea feared a domination of Tetley’s corporate culture

Financial constraints

• The legal and capital controls in India made the listing of Tetley shares in India unattractive

• Tata Tea did not want to carry the heavy debt burden held by the SPV, particularly as Tata Tea was an AAA-rated Indian company

• Any changes in Tetley’s structure needed to be pre-approved by bankers, due to restrictive covenants of the LBO

• The back-office integration was complicated by the fact that Tetley reported in UK GAAP, while Tata Tea adhered to Indian GAAP

Cultural / Racial

• There was a great deal of concern that British employees would resent having Indian managers

• Tetley employees were given substantial retention packages to avoid exodus

Integration Problems – 2/2

Corporate Philosophy

• Tata Tea was a collection of estates that just happened to sell package tea and focused on Asia (excluding China), Middle East, and Eastern Europe

• Tetley was a marketing and packaging company that had relationships with tea estates and focused on North America, Australia, and Western Europe

• Due to the significant differences in customer base, the two companies had dissimilar products

Difference in varieties of Tea

• It was initially believed that huge synergies would be achieved because Tetley could source teas substantially from Tata Tea’s estates

• Unfortunately, the majority of Tetley’s teas were of a different flavor, quality, and cost from teas found in Tata’s estates

• Therefore, the integration process had to focus more on new products than on substitution

Exchange Rate

• The rupee was strengthening relative to the pound• Acquisition of teas from India became more expensive for Tetley and made

the transfer of money back to the Tata organization less remunerative

Merger Implications

Post MergerPre Merger

Value Chain

Outsourcing

Margins

Global Footprints

Concentrated on packet tea

TATA Tea Tetley

Second largest supplier of tea bags

Tetley launched in customised flavoured tea bags, mainly

concentrating on overseas markets

Produced 95% of its tea requirement in-

houseMargins highly

correlated with tea cycle

Predominantly domestic

operations

Outsourced entire requirement from

35 countriesMargins inversely correlated to tea

cycleUK and USA

account for bulk of sales

70% of Tata Tea’s tea requirement is outsourced from 20 different countries

Margins hedged

Global presence

Future Strategy

• Growing Black tea markets define opportunity for geographical expansion of portfolio in overall Black tea

• Top 30 ‘Tea’ markets account for 90% of the market volume in the packaged black tea segment

• Tata Tea & Tetley present in only 35% of this market – with a combined revenue of Rs 3000 Crores

• Green / Fruits & Herbal / Flavours / Specialty tea account for 49% value of all global packaged tea revenues

SIGNIFICANT POTENTIAL FOR ADDRESS OF REVENUE GROWTH

Tata Steel:

Strategy post-2003

• Domestic Expansion• De-integrate• Mature market M&A• Raw materials security• Downstream products• Logistics Control

Changing market

dynamics

• Global consolidation• Supply side constraints• Chinese capacity build-up

Tata growth strategy 2005-2015

Tata steel pre merger:

2005 20060.00%

10.00%20.00%30.00%40.00%50.00%60.00%

Gross MarginEBIT Margin

2006150001550016000165001700017500

Sales

Sales

20042005

20060.00%

20.00%40.00%60.00%80.00%

Debt Equity

Debt Equity

Corus pre merger

Advantages

• Products on the higher side of value chain• Presence in 50 countries• European high value customers• Rich in technology and R&D• High value product portfolio

Challenges

• High debt burden• High costs• Low profit margins• Raw material sourcing• Access to developing markets

Broad synergies:

• Cost leadership of Tata• Market reach:

– India and SE Asia for Tata– Europe for Corus

• Value chain:– Backend and low – end products: Tata– High value products and R&D: Corus

• Technology transfer and cross fertilization• Organizational culture and internal value system:

– ‘Aspire’ in Tata– ‘The Corus Way’ in Corus

Timeline of acquisitions

March 2004• Daewoo commercial vehicle company,

KoreaJune 2008• Jaguar and Land Rover, Europe

Reasons

• De- risking of cyclical nature of commercial truck business i.e. moving into less cyclical businesses– LCVs and buses– Spare parts and services

• Intense foreign competition• Venturing into foreign markets for better exposure• “Tata” – a trusted name in Indian households and well known

for sturdy vehicles• Change of image with audacious acquisitions

Tata Motors- Why JLR ?

• Global footprint (Indian Market – 90%)

• Fastest way to grow – inorganic growth

• Ready made technology & product pipeline (Nano – 5+ yrs.)

• Long-term benefits from component sourcing, low cost

engineering and design services.

• Brand Revamp

• Presence in the entire spectrum

Ford Motors

• Drop in Jaguar sales by 33% in the US and Europe in the first two months of 2008

• Drop in sales of Land Rover by 13% in the US and around 7.7% in Europe during the same period.

• Loss of $15.3 billion - Closing of plants and laying off people• Ford is considering a restructuring plan in North America with

the amount it is getting from the deal.

Reasons for Jaguar and Land Rover acquisitions

LAND ROVER- • Reputed for manufacture of rugged vehicles • Popular amongst farmers and militaries• Natural fit for Tata’s SUV segmentJAGUAR- • Well known for “performance/ luxury” vehicles • Diversification of portfolio

Tata auto component– Flagship company of TAMO’s ancillary biz– Manufacturing, Engineering and Supplychain management– Customers include Global OEMs like Ford,Daimler, Chrysler, FIAT

Tata Steel - Corus– Leader in automotive grade steel in theEuropean markets– 16% of revenue from auto steel division– Enjoys “Q1” supplier status with Ford tosupply steel for Jaguar and Land Rover

Tata Consultancy Services– Provides services like engineering design,manufacturing solutions and sourcing services– Automotive division accounted for 15%revenues– Major customers are Chrysler, Ford, GM

INCAT– Provides services like supplier programs,consulting services and global sourcing– Major customers are Chrysler, Ford, GM,Honda and Nissan

JLR

The Deal

• $2.3 bn – 100% in JLR• $600 million in pension plans by Ford• Assets :

– 3 Major UK manufacturing plants– Perpetual royalty free licenses of IPR – 2 Design centres and 26 National Sales companies

• Amount to be raised = $3 bn– $1.1 bn equity issue and $500 mn foreign equity issue– $670 mn by selling stake in subsidiaries– $700 mn for working capital by existing lenders of JLR.

Strengths- Tata’s strong management capability- Strong monetary base to invest

Opportunities- Support from Ford in terms of technology, engine, IT - Addition of luxury brands in the portfolioAccess to European products

Threats- Volatile market ,Slow down, Currency depreciation and adverse movement.- Strong presence of competitors like Mercedes, BMW, Lexus.

Tata- JLR acquisition

Key indicators

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Total Debt in Rs.cr

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Shares issued (in lakhs)

Shares issued (in lakhs)

Success or failure???

• Both ventures have turned profitable• Good performance of JLR

– Sales (for Tata Motors) – Rs. 27055.57 cr for quarter ended June 2010 (rise of 64% y-o-y)

– PAT- Rs. 1988.73 cr despite a loss of Rs. 328.78 cr in corresponding period of previous year

– Growth in volumes for JLR drove up operating margins by 60% .– JLR – From loss of 1900 Cr to 20 cr profit.– Out of $ 3 billion loan taken , $1.98 billion has been repaid

• Other operations, too, are highly profitable. For ex- Nano, Ace etc.

Way Forward-Possible options

• Heavily loaded balance sheet –Focus on PMI

• 2/3rd of JLR sales from Europe– diversify customer base

• Increasing focus on China & Russia.

• Sharing of engines and other technology.

• Main activities:

– Lends its brand name to group

companies as per the Brand Equity

and Business Promotion Agreement

– Maintain shareholding in main

operating companies

– Invest in operating companies to

facilitate growth, and to promote

entry into new businesses

Tata Sons – Brief

• Tata Sons Limited was set up in 1917-18

• It is a USD70.8bn enterprise employing

350,000 people in 80 countries

• Tata Sons has been the owner of the

Tata name and the Tata trademark

• Income consists of commission,

dividends and interest, income from

services, rents and other incomes

Firm Brief

Tata Sons – Strategy (1/2)

Cross-holding structure

• Tata Sons follows a private holding structure in which the affiliate companies are publicly listed

– Realize true value of Held companies– Raise capital at the affiliate company level with minimal

causalities between companies– Effective control of the companies though cross linkages

Affiliate companies held a 12.8% in the Holding company, up from <1%

Strategy

Cross-holding structure Global operations Philanthropic values

Tata Sons – Strategy (2/2)

Philanthropic values

• Adds public goodwill to the Tata brand• Philanthropic ideology to cater to masses

– Was the idea behind the development of Nano– Launched Tata Swatch

Global operations

• Leverage strong operations at home to grow internationally– Realize true value of Held companies– Inorganic expansion in the other markets

Tata Steel bought Corus (USD12bn) Tata tea bought Tetley (USD450mn) Tata Motors bought JLR (USD2.3bn)

– Growing exports Affiliate companies foreign sales were 65% of the total in

FY2009 (FY1991: <10%)

THANK YOU!