Professional Documents
Culture Documents
1:Background 2:M&A Examples 3:Assessment of M&A 4:Assessment of given cases 5&6: Roundup and Conclusion
The first practical automobile with a petrol engine was built by Karl Benz in 1885 in Germany. He got patent for his automobile in 1886 and began the first production of automobiles in 1888. The automobile is a primary mode of transportation for many developed economies. Fast growing countries in automobile sector are South Korea, USA and Japan.
The Indian Automobile Industry is manufacturing over 11 million vehicles and exporting about 1.5 million every year. The dominant products of the industry are two wheelers with a market share of over 75% and passenger cars with a market share of about 16%. About 91% of the vehicles sold are used by households and only about 9% for commercial purposes. It provides direct and indirect employment to over 13 million people.
The supply chain of this industry in India is very similar to the supply chain of the automotive industry in Europe and America. The orders of the industry arise from the bottom of the supply chain i. e., from the consumers and goes through the automakers. Demand Determinants: Affordability Product innovation Infrastructure and price of fuel Competition
Toyota Motors General Motors Volswagen AG Ford Motors Hyundai Motors Honda Motor Renault SA Renault SA Nissan Motors PSA Peugeot Citroen
Year
2010
2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Car Production
2,814,584 2,175,220 1,846,051 1,713,479 1,473,000 1,264,000 1,178,354 907,968 703,948 654,557 517,957 533,149
Commercia % Change l
29.39 17.83 7.74 16.33 16.53 7.27 29.78 28.98 7.55 26.37 -2.85 722,199 466,330 486,277 540,250 546,808 362, 755 332,803 253,555 190,848 160,054 283,403 285,044
% Change
54.86 -4.10 -9.99 -1.20 50.74 9.00 31.25 32.86 19.24 -43.52 -0.58
% Change
33.89 13.25 3.35 10.39 19.36 7.22 23.13 22.96 8.96 1.62 -2.10
Type of Vehicle Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
1,209,876
1,309,300
1,545,223
1,777,583
1,838,697
353,703
391,083
519,982
549,006
417,126
374,445
434,423
556,126
500,660
501,030
6,529,829
7,608,697
8,466,666
8,026,681
8,418,626
Total
8,467,853
9,743,503
11,087,997
10,853,930
11,175,479
Type of Vehicle
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
1,061,572
1,143,076
1,379,979
1,549,882
1,551,880
318,430
351,041
467,765
490,494
384,122
307,862
359,920
403,910
364,781
349,719
Two Wheelers
6,209,765
7,052,391
7,872,334
7,249,278
7,437,670
Total
7,897,629
8,906,428
10,123,988
9,654,435
9,723,391
A MERGER happens when two firms, often about same size, agree to go forward as a new single company rather than remain separately owned & operated by pooling all their resources together, to create a sustainable competitive advantage. For example, both Daimler-Benz & Chrysler ceased to exist when two firms merged, and a new company Daimler-Chrysler was created. When a Company takes over another one & clearly becomes the new owner ,the purchase is called ACQUISITION. Unlike mergers, acquisitions can sometimes be unfriendly. i.e., when a firm tries to takeover another by adopting hostile measures. Eg: Tata and JLR
Increased speed to market Lower risk compared to developing new products Increased diversification
M&A
Automotive mergers and acquisitions act as a means of increasing market share and improving reach. Other related reasons include attaining economies of scale and augmenting product ranges. The global automotive industry is, however, unlikely to witness the kind of mega automotive mergers seen in the drug or media industries for two reasons. Secondly, automotive manufacturers have already polarized into six major alliances - GM Alliance, Ford-Mazda, DCX Alliance, Toyota, VW Group and Renault-Nissan.
1.Mahindra Renault 2.Tata Jaguar Land Rover 3.Maruti Udyog and Suzuki 4.Mahindra and Sangyong 5.Tata and Fiat 6.Reva and Mahindra 7.Mahindra and Punjab Tractor
TATA GROUP is 150 year old, Previously Tata Engineering and Locomotive Company, Telco. India's largest passenger automobile and commercial vehicle. Tata Motors was established in 1945 Listed on the New York Stock Exchange in 2004.
1922 - Founded in Blackpool as Swallow Sidecar company 1975 - Nationalized in due to financial difficulties 1984 - Floated off as a separate co in the stock market 1990 - Taken over by Ford A statement of ultra luxury, Holds Royal warrants, Rarely advertised, Fords formula one entry since 1990s Ford acquired Jaguar for $2.5 billion
Founded in 1948 as a marquee of the Rover Company. Known for superior off-road performance, Used by military for projects and expeditions, Safe but less reliable, Makeover in recent times
In 1994 Rover Group is taken over by BMW & sold to FORD MOTORS for 2.75 bn$ in 2000.
Key issues: Ford acquired Jaguar for $2.5 billion in 1989. Ford acquired Land Rover for $2.75 billion in 2000. But the US auto major put the two marquees on The market in 2007 after posting losses of $12.6 billion in 2006
Ford acquired Jaguar for $2.5 billion in 1989. Ford acquired Land Rover for $2.75 billion in 2000. But the US auto major put the two marquees on the market in 2007 after posting losses of $12.6 billion in 2006 - the heaviest in its 103-year history.
Reports said losses at Jaguar stood at USD 715 million in 2006. The Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007. Bringing down production costs and turning around the company successfully will be the challenge-Its a test that Ford failed.
12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar. August 2007 - Major bidders are identified Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management Indias Tata Motors and M&M arrive as top bidders ($ 2.05b & $ 1.9b) 03/01/2008 Ford announces Tatas as the preferred bidders 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors. 02/06/2008 The acquisition is complete
Consumer demand plummeted Credit lines were frozen Automotive sector in India suffered contraction in demand Launch of Nano delayed Tata Motors reeling under a huge debt burden
The profits for the first quarter for the year 2008-09 were at 3.26 billion Q3 the sales of passenger vehicles went down to 41,287 units a drop of 14.14% Tata Motors cut production across different categories.
Tata Motors is vulnerable to greater competition at home. Foreign vehicle makers including Daimler, Nissan Motor, Volvo and MAN AG have struck local alliances for a bigger presence.
Tata Motors, which has a joint venture with Fiat for cars, engines and transmissions in India, is also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and Volkswagen.
A] Cost synergies 1] Material costs and not manpower key to better margins. Purchasing basket offers bigger opportunity for cost reduction It is more important to manage the material & sourcing costs to improve margins Material Cost is 4-6x the wage cost for high-end products such as Land Rover. 2] Tata Group has multiple levers
Tata Auto Comp (TACO) - TATA group has a a rich ecosystem of JVs with leading players in Auto ancillary space held through TACO. TCS, Corus and Incat have varied competencies in the Auto space
In the long-run Tata Group and Tata Motors footprint in South-East Asia should help Jaguar/Land Rover diversify their geographic dependence from US (30% of volumes) and Western Europe (55% of volumes)
1] Single shifts and down time at all three UK assembly plants. 2] Supplier payment terms extended from 45 to 60 days in line with industry standard. 3] Receivables reduced by 133 million from 38 to 27 days. 4] Inventory reduced by 217m between June 2008 and March 2009 from 70 to 50 days .
Sales volume decreased by 35.2% Lack of consumer loans Issue of timing Operational freedom slows pace of change
Depressed state of the global premium car market Jaguar/Land Rover lost 306 million pounds ($504 million) for the fiscal year ending March 2009 Tata Motors reported a net loss of Rs3.29bn ($67 million) for the quarter to end-June Tatas core commercial vehicles market in India is also suffering from slower sales
Tata wanted to make a global impact and it thinks that buying these brands at a lower rate now, will give better value later on. This acquisition also eases the entry of Tata in European market which it has been eyeing for long. A previous JV with FIAT took place, this will further help them penetrate EU market.
Reduce the company dependence on the Indian market which accounted for 90% of its sales Increase sales in emerging markets Reduce dependence on mature markets Opportunity to spread its business across different customer segment
At the price staring from 63 lakh and going upto 93 lakh, it seems Tata has just got the right place to compete with the current market leaders BMW, Audi, Mercedes Publicity on an international scale Access to large distribution network
Jaguar Land Rover global sales in December 2009 were 21,134 vehicles, higher by 33%. Jaguar sales for the month were 4,794, higher by 5%, while Land Rover sales were 16,340, higher by 45%
The US $6.7 billion Mahindra Group is among the top 10 industrial houses in India. Mahindra is the market leader in multi-utility vehicles in India. It made a milestone entry into the passenger car segment with the Logan. Mahindra & Mahindra is the only Indian company among the top tractor brands in the world.
Mahindra & Mahindra Limited is the flagship company of the Mahindra Group, a multinational conglomerate based in Mumbai, India. The company was set up in 1945 in Ludhiana as Mahindra & Mohammed by brothers K.C. Mahindra and J.C. Mahindra and Malik Ghulam Mohammed. After India gained independence and Pakistan was formed, Mohammed emigrated to Pakistan where he became the nation's first finance minister. The company changed its name to Mahindra & Mahindra in 1948.
Punjab Tractors Limited was incorporated in June 1970. It is the third largest manufacture of tractors in India, with tractors being marketed under the Swaraj brand name. The manufacturing plants are located in Mohali, Punjab. The acquisition of 43.5% of Punjab Tractors by Mahindra and Mahindra makes Mahindra, one of the biggest Indian automobile/tractor companies, with up to 40% of the Indian tractor market.
The project is based on the know-how and technology developed by Central Technical Engineering Resereach Institute (CMERI), Durgapur and licensed through the National Research Development Corporation (NRDC), New Delhi. 4,52,000 No. of equity shares subscribed for by promoters, etc. 85,000 No. of Equity Shares allotted to Indian Govt. 3,000 pref. and 5,63,000 No. of Equity shares offered to the public in August 1972.
Mahindra and Mahindra merged with Punjab tractor in 1st August 2008 Logic behind
For acquire market share Focus on rural area
Mahindra
& Mahindra Ltd., the fourth largest tractor manufacturer in the world and the domestic leader for 23 consecutive years Sept. 2008 it acquire Punjab Tractors Ltd. at a price of Rs. 360 per share. Tractors Limited operation since 1974. having been in
In
Punjab
The Board of Directors of M&M and PTL unanimously approved a scheme of amalgamation of Punjab Tractors Limited (PTL), an M&M subsidiary, with Mahindra & Mahindra Ltd. Mahindra owns a majority stake in Punjab Tractors Limited and had earlier acquired 63.33% stake in PTL in July 2007. MHFL, a wholly owned subsidiary of M&M, currently holds 1.31% of PTL, and is also in the process of being merged into M&M.
Under this amalgamation scheme, pursuant to provisions of Sections 391 to 394 and other relevant provisions of the Companies Act, 1956, PTL will be merged into M&M and all its assets and liabilities will be transferred to M&M at book values. The Appointed Date under this scheme is 1st August 2008. Upon the scheme becoming effective, M&M will transfer all the equity shares held by it in PTL to a Trust, of which M&M is the beneficiary. M&M will issue its shares to PTL shareholders as on record date, based on the swap ratio determined by independent valuers.
EAT
65.05
NO. OF SHARES
24.574
6.076
EPS
37.3
18.34
P/E RATIO(TIMES)
15.6
5.24
MARKET PRICE PER SHARE(MPS) TOTAL MARKET VALUE (N*MPS) OR (EAT*P/E RATIO)
582
96.10
1430206800
58390360
Combined market value =1430206800+58390360/2457400+202533 =1488597160/26.6cr =290.89 It acquire 1:3 So Punjab get= 607600/3=202533 eq. share Total share=202533+2457400=26.6cr Combined EAT=891.46+65.06=956.53cr Combined EPS=956.52L/26.6L=35.95
EPS
18.34
35.95
ACQUIRE 44%
2.67cr
1*2.67/3 =0.89
18.34*2.67
35.95*0.89
TOTAL
49.03cr
40.00cr
MARKET PRICE MERGER Ratio of market price = 96.1:582 No of eq. share acquire by Punjab =96.1*607600/582 =100327 Total share =2457400+100327 =2557727 EPS=89146000+6506000/2557727 =95652000/2557727 =37.4
Market price
EPS 18.34 37.4
ACQUIRE 44%
2.67cr
96.1*2.67/582 =0.44cr
18.34*2.67
37.4*0.44
TOTAL
49.03cr
16.46cr
EPS MERGER Ratio of EPS = 18.34:37.3 No of share acquire by Punjab =18.34*607600/37.3 =298750 Total share =2457400+298750 =2756150 EPS=89146000+6506000/2756150 =95652000/2756150 =34.7
EPS
18.34
34.70
ACQUIRE 44%
2.67cr
18.34*2.67/34.7 =1.41cr
18.34*2.67
34.70*1.41cr
TOTAL
49.03cr
48.93cr
If we take the market price merger and EPS merger of 44% share i.e. 2.67cr Punjab tractor have to go for EPS merger because in In Mkt price merger total EPS of 44% share=16.46cr In EPS price merger total EPS of 44% share=48.93cr In swap rate i.e. 1:3 total EPS of 44% share =40.00cr So Punjab tractor have to go for EPS based merger
PUNJAB MOTOR
In the above data indicate that Punjab motor get profit after merger but Mahindra get loss if we calculate it in combined market value.
Combined value=143.03+5.84+21.56 =170.43cr Cost of acquisition =607600*360=21.874cr Less acquire value =607600*96.10=5.84cr Net amount=16.035 Synergy value =21.56cr Net gain =21.56-16.035 =5.525cr
increased from 891.46 to 965.21b Tata Motors (TML) recorded an outstanding performance for 1QFY2011. Net profit for the quarter stood at Rs1,979cr as against net loss of Rs334cr in 1QFY2010. This exceptional performance came on the back of improved operational performance at JLR and other key subsidiaries of the company.