Abstract

In June 2008, India-based Tata Motors acquired Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 2.3 billion. To finance the acquisition, Tata Motors raised a bridge loan of US$ 3 billion from a consortium of banks. Tata Motors planned to raise Rs. 72 billion through three simultaneous but unlinked rights issues. However, the rights issue ran into problems as the share price of Tata Motors continued to slide down, after the issue opened. The shares were available in the stock market at a much lower price compared to the price offered by the company. Other options to obtain funds like divesting stake in the group companies, floating international equity related issues were also scrapped, due to adverse market conditions. At this juncture, in order to obtain funds, Tata Motors announced public deposit scheme in December 2008. Through all the fund raising efforts, the company was able to repay only US$ 1 billion by the end of 2008. Tata Motors was required to repay the entire amount of bridge loan by June 2009. Due to adverse financial conditions and credit freeze, Tata Motors announced that it was planning to roll over the bridge loan, which was estimated to further add to the debt burden of the company.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand acquisition of JLR as an example of Tata Motors’ inorganic growth strategy
• Understand the impact of macroeconomic factors on the global automobile industry
• Understand the implications of global credit crisis on the availability of funds for corporates
• and Analyze different modes of finance available to finance cross border acquisitions.

Keywords

Tata Motors, Ford, Jaguar, Land Rover, Acquisition, Bridge loan, Global financial crisis, Leverage, Debt Financing, Rights issue, Differential voting rights, Overseas floatation, Convertible preference shares, Fixed deposit schemes, Capital Budgeting, Capital Structure, Sources of Finance