Land Rover, Jaguar bid fits into Tata strategy

Land Rover, Jaguar bid fits into Tata strategy

The Tata group’s bid to buy premium vehicle brands such as Land Rover and Jaguar may bolster Tata Motors’ image as a global company and help it go upscale, in much the same way that previous acquisitions such as Tetley Tea Ltd and Corus Group Plc. did for Tata Tea Ltd and Tata Steel Ltd, respectively.

Ratan Tata, the 71-year-old chairman of Tata Sons Ltd, the holding company of the group, had said in an August interview with a television channel that Tata Motors Ltd, which is India’s largest auto maker by revenues, was interested in acquiring the brands from Ford Motor Co., to increase its global reach and scale. He didn’t say for how much.

According to a recent report in The Times (London), Tata Motors is one of the three bidders shortlisted by Ford and has been invited to meet union leaders on 20 November.

Both Land Rover and Jaguar have the one thing Tata’s vehicles can barely boast of—a premium tag—and that might be the one reason Tata is willing to put an all-out bid even though the units are loss making, say analysts.

The cheapest Land Rover retails at the equivalent of Rs15.5 lakh in the UK where it’s made. On the other hand, Tata Motors has been in the news mostly for developing the world’s cheapest car, which it plans to sell for Rs1 lakh next year.

“If one wants a brand, which is recognized as one of the top brands in a space, one has to play in the premium end of the market," said Bharti Gupta Ramola, head (financial advisory services) at transactions and audit advisory services firm PricewaterhouseCoopers. “Mergers and acquisitions is perhaps the only quick way to build a brand. To do from scratch requires a lot of time and investment," she added.

While analysts tracking auto scrips say the purchase will dent Tata Motors’ profitability in the short run, strategic marketing experts such as Harish Bijoor say it’s more about taking the company to a different market segment.

“When you acquire these brands, you try to translate the premiumness into mass markets," said Bijoor, who runs consultancy firm Harish Bijoor Consults Inc.

“The Tata strategy is essentially a top-down strategy. You can acquire the image of a high quality, manufacturing facilities of high quality...; you don’t acquire liabilities, but brand assets," he added. Bijoor headed marketing at Tata Coffee Ltd until a couple of years ago.

The Tata group refused to comment on this strategy.

That strategy is not new to the Tata group. In 2000, it bought the loss-making UK-based Tetley Tea—its first major global acquisition—which was several times its size, but more upmarket, making Tata Tea the world’s No. 2 branded tea maker. The group’s last major acquisition was Corus Group, a maker of high-grade steel, again, larger than Tata Steel. That cost a whopping $12 billion (Rs50,400 crore in January).

In 2005, the Tata group’s Indian Hotels Co. Ltd (it runs hotels here under the Taj brand name) agreed to operate and manage The Pierre hotel at New York’s Fifth Avenue, where diners at the fashionable Café Pierre have to wear a dinner jacket for evening meals. Indian Hotels operates five-star hotels in India, but the Pierre is synonymous with top-line luxury and operated as a Four Seasons property before it came to the Tata group.

Overall, the Tata group has spent around $15.5 billion in acquiring foreign companies. This excludes deals where the group has not disclosed the price of the acquisition. But it’s not alone. Buoyed by sustained economic growth and domestic consumption, Indian firms have been on an overseas shopping binge for companies, assets, or brands.

Indian firms, including those belonging to the Tata group, spent $15.3 billion in buying overseas assets in 2006, according to audit firm Grant Thornton Plc. In 2007, two deals alone—Tata-Corus and Hindalco-Novelis—accounted for more than $18 billion.

Ramola said owning luxury brands will also help firms tap into the growing demand for such products in India.

India is now home to more than 83,000 millionaires, people with more than $1 million in net assets, according to a 2006 report by finance company Merrill Lynch and consulting firm Capgemini. This has seen the entry of luxury brands such as Gucci and BMW.

The Tata group has a presence in this segment through its Tanishq range of premium jewellery, but making cars and taking them premium could take longer.

If the Tata group acquires the Land Rover-Jaguar portfolio, it will likely be the second most expensive buy for the group after Corus. Various newspaper reports, which couldn’t be independently verified by Mint, said the deal was valued between $1.5 billion and $2 billion.