Mumbai: Tata Motors today said that it had entered into a definitive agreement with the Ford Motor Company for the purchase of Jaguar and Land Rover for $2.3 billion upon closing.
The transaction includes the acquisition of brands, plants and intellectual property rights.
"We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business," said Ratan Tata, chairman, Tata Sons and Tata Motors, in a communiqué. "We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact."
Tata also said, "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."
The transfer of ownership to Tata Motors, India's largest automobile company with revenues of $7.2 billion in 2006-07, is expected to close by the end of the next quarter, subject to applicable regulatory approvals.
The deal allows Ford to raise a significant amount of money for its restructuring effort, yet maintain its ties with the two brands.
At closing, Ford will contribute up to approximately $600 million to the Jaguar Land Rover pension plans, an issue that is reported to have been under intense negotiations between the two companies.
According to the agreement negotiated over the past several weeks between the two auto makers, Ford will continue to supply Jaguar Land Rover for differing periods with power trains, stampings and other vehicle components, in addition to a variety of technologies, such as environmental and platform technologies; that had been another area of intense negotiations between the two companies.
Ford has committed to providing engineering support, including research and development, plus information technology, accounting and other services.
In addition, Ford Motor Credit Company will provide financing for Jaguar and Land Rover dealers and customers during a transitional period, which can vary by market, of up to 12 months.
Moreover, Ford and Tata Motora came to an agreement that ensured that there would not be any significant changes to Jaguar Land Rover employees' terms of employment on completion of the acquisition. In fact, the two comoanies ensured that Jaguar Land Rover's employees, trade unions and the UK government had been kept informed of developments as the negotiations progressed, ensuring their support for the transaction.
Alan Mulally, president and CEO of the Ford Motor Company, said, "Jaguar and Land Rover are terrific brands. We are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata's stewardship. Now, it is time for Ford to concentrate on integrating the Ford brand globally, as we implement our plan to create a strong Ford Motor Company that delivers profitable growth for all."
Why Ford sold Jaguar and Land Rover
For Ford, which lost $2.7 billion in 2007 and $12.6 billion in 2006, the divestment is in line with its strategy to restructure, operate profitably at lower volumes and change its automobile model mix to turn around its loss-making operations in North America.
The company started the lengthy sale process for the sale of two brands in June 2007 when it announced its intention to sell them as a package (See: Jaguar, Land Rover may leave Ford stable) through an open bidding process in a bid to attract a buyout price of at least $1.5 billion, which the US company wanted to deploy for its turnaround operations, named "The way forward".
Earlier in March the company had sold-off Aston Martin for $848 million to a group led by David Richards, chief executive of the UK-based Prodrive, which helped develop Aston Martin's racing programme starting in 2004, backed by two Kuwaiti companies in bidding for the iconic British brand, Adeem Investment and the Investment Dar Company. (See: Ford to sell Aston Martin stake for $848 million: report)
Tata Motors made known its intention to bid for the proposed takeover of Ford's UK-based Jaguar and Land Rover divisions in July 2007 (See: Tata Motors may bid for Ford`s Jaguar and Land Rover, roll out Ferrari) even as a number of private equity firms, showed a more than a passing interest in acquiring the brands.
Among the PE firms named as potential bidders said to have approached Ford were Ripplewood Holdings, a group headed by former Chrysler president Thomas Stallkamp, and One Equity Partners, one of whose senior partners included Jacques A Nasser, the former chief executive of Ford.
From India utility vehicles maker Mahindra & Mahindra was keen on acquiring Land Rover and had joined One Equity to put in a bid for it.
However, by Deccember 2007, Tata Motors emerged the preferred buyer, as it was the only bidder willing to bid for and retain both the brands as a package, as stipulated by Ford. (See: Tata seen preferred bidder for Jaguar, Land Rover: report)
Moreover, even the labour union Unite that represents the workers at the Jaguar and Land Rover plants also announced its backing for the Tata Group.
Founded in 1922, Jaguar has been amongst the premium brands for luxury saloons and sports cars. However, Ford has never revealed any details about Jaguar's financial performance, though reports indicate that the US automaker, which acquired the brand in 1989 for $2.5 billion, had pumped in about $10 billion in it.
Despite the sizeable investment, analysts say that Jaguar has never made a profit for Ford, unlike Land Rover, which has generated three years of record sales, and has been profitable since it came under Ford's ownership in 2000.
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