New fault line

New fault line

The imminent sale of Ford Motor Co.’s Jaguar and Land Rover units in the UK has shown a new fault line in the global takeover bids. This is a fault line that Indian companies bidding overseas may have to negotiate and straddle frequently in the years ahead.

Tata Motors Ltd, Mahindra and Mahindra Ltd and private equity firm One Equity Partners Llc. are in the race to buy these iconic but struggling luxury car brands. Responses from two sets of stakeholders at these two units have been diametrically opposite to each other.

The labour unions say they would prefer one of the Indian automobile companies to win the bid. The reason is straightforward. The Indian bidders have a long track record in manufacturing. They are perhaps less likely to strip and sell parts of Rover and Land Rover to generate profits, unlike a typical private equity firm. Their approach is likely to be about rolling up the sleeves and getting things done on the shop floor and in the design studio. What’s more, the Tata group’s initial months in control of Corus Plc. in the UK may have assuaged union fears about restructuring through job losses.

But that’s not how another part of the Jaguar and Land Rover network sees it. The Wall Street Journal says that dealers of these two cars would prefer One Equity Partners Llc. to take control because of “unique image issues". The paper quotes Ken Gorin, chairman of a group of Jaguar dealers in the US. “I don’t believe that the US public is ready for ownership out of India. I believe it will throw a tremendous cast of doubt over the viability of the brand," he said. Note that the objection is not company-specific, but has to do with the “national" brand.

In contrast, One Capital Partners Llc. has on board Jacques Nasser, a former chief executive of Ford Motor Co., who was keen that Ford’s luxury brands should get investment and grow when he was heading the Detroit company.

The reason this problem has cropped up now rather than in earlier global takeover bids by Indian companies: There are brands involved. Most of the big-bang global takeovers that Indian companies have made in recent years have been in the commodity business, where image is relatively unimportant. There have been only a few stray cases of takeovers involving iconic brands, such as Tata Tea Ltd’s purchase of Tetley in 1999.

Many acquisitions in the US and Europe by firms from the emerging markets have tripped over protectionist wires, as governments there have trotted out the age-old “strategic concerns" fear (the UK has been an honourable exception). Dubai Ports and China National Oil Corporation are two well-known victims of this fear-mongering.

These fears will not go away. In fact, newer ones could emerge as emerging-market firms look beyond the oil-ports-steel type of sectors and seek to acquire brands and the companies that make them; units such as Jaguar and Land Rover, for example.

It’ll be a slow process. A new report published by the Boston Consulting Group this month, on 100 global challengers from the emerging markets, shows that a vast majority of them continue to be in what once used to be called heavy industry. However, there is a growing roster of companies in areas such as food, automobiles and consumer electronics that have global ambitions.

The responses to the Tata Motors Ltd and Mahindra and Mahindra Ltd bids for Jaguar and Land Rover show that managing the external environment in such cases is a game far different from dealing with governments during takeovers of steel companies. Here, image is very important—not just of the companies but the broader national brand as well.

Indian companies need to take this new reality on board.

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