Acquisitions And Other Types Of Strategic

Published Date: 02 Nov 2017

I, Anuj Sehgal, student of MBA in International Business and Finance, hereby declare that project titled "Impact Of Mergers And Acquisitions on Growth of An Organisation" is the original work done by me.

Anuj Sehgal

ACKNOWLEDGEMENT

It is with the feeling of satiated and sense of Zenith that I draft this acknowledgement note. I wish to express my gratitude to those who have generously helped me to compile the Dissertation and stand up high, to the expectation of the institute.

I wish to express my deep sense of gratitude to my Faculty Guide Prof. Nishant Agarwal, Amity International Business School, Uttar Pradesh for his guidance has aided me in the completion of this project.

I further declare that the information presented in this project is true and original to the best of my knowledge.

ANuj sehgal

EXECUTIVE SUMMARY

"The decision to invest in a new asset would mean internal expansion for the firm. The new asset would generate returns raising the value of the corporation. Mergers offer an additional means of expansion, which is external, i.e. the productive operation is not within the corporation itself. For firms with limited investment opportunities, mergers can provide new areas for expansion. In addition to this benefit, the combination of two or more firms can offer several other advantages to each of the corporations such as operating economies, risk reduction and tax advantage."

Today mergers, acquisitions and other types of strategic alliances are on the agenda of most industrial groups intending to have an edge over competitors. Stress is now being made on the larger and bigger conglomerates to avail the economies of scale and diversification. Different companies in India are expanding by merger etc. In fact, there has emerged a phenomenon called merger wave.

This dissertation is a study on the objectives of mergers & acquisitions, as to why organizations undertake the inorganic mode of expansion. However the main focus is on studying the performance of the company before and after the merger by calculating various ratios like Operating Profit Margin Ratio, Net Profit Margin Ratio, and Return on Capital Employed Ratio, Debt Equity Ratio, and Earning per Share. Through analyzing these ratios we came to know the Operating Performance and Shareholders value of acquiring companies.

Also I will be analyzing the reasons as well as the benefits from these mergers, also as we know that every merger cannot be a success there are various mergers that eventually fail, so in my study I will also going to analyze the success or failure of mergers.

In view of this dissertation my Research work is restricted to 3 companies of TATA Group namely Tata Steel, Tata Motors as well as Tata Chemicals.

Table of Contents

CHAPTER-1 INTRODUCTION

1.1 OBJECTIVES

Main objective

The main objective of the research is to analyse the impact of mergers & acquisitions on the performance of the 3 companies of the Tata Group (namely, Tata Motors, Tata Steel & Tata Chemicals)

Sub Objectives

To analyze the impact of mergers & acquisitions on the operating performance of the firm by analyzing operating profit margin ratio, net profit margin ratio.

To strategically evaluate the impact on shareholders wealth post merger and acquisition.

To analyze the success or failure of the merger.

1.2 RESEARCH METHODOLOGY

Study Design: Study Design will be based on the Historical collection of data & analysis of the reports with a Sampling design technique taking into consideration the performance & objectives associated with the Tata Group.

Setting: The Research work will be conducted within the premises of the Campus although a sufficient amount of data gathering would be based on personal visits to the Company.

Sample Size: 3 companies i.e. Tata Motors, Tata Steel, and Tata Chemicals of TATA Group.

Sampling Technique: Judgment Sampling & Non probabilistic sampling technique.

Data Collection Procedure: Data collection procedure will be exploratory research based on the variables assigned by way of Secondary research sources like Company Reports, Business Magazines, and Websites.

Data Analysis Procedure: Analyzing the financial ratios i.e. Operating Profit Margin, Net Profit Margin, EPS, ROCE, Debt Equity Ratio, etc. of the company before and after the merger.

1.3 LIMITATIONS OF THE STUDY

The study is limited only to 3 companies of TATA Group (namely, Tata Motors, Tata Steel and Tata Chemicals) so I will be analyzing the impact of Mergers and Acquisitions only on these companies and not on the TATA Group as a whole.

Limited Period: To analyze the impact of these mergers I have analyzed the financial statements by calculating ratios for 5 years i.e. 2 years pre merger, and 1 year has been taken in which the merger took place and then again 2 years post merger data have been analyzed so as to properly analyze the impact of these mergers on the performance of the firm. Conclusion and recommendation are based on such limited data.

Limited Data: This project has completed with annual reports of the company; it just constitutes one part of data collection i.e. secondary.

CHAPTER-2 LITERATURE REVIEW

2.1 CRITICAL REVIEW OF LITERATURE

During the last two decades, due to high competition, emerging of new financing opportunities and decreasing of entry barriers throughout the globe, mergers and acquisitions M&A, internationally and domestically have developed into an admired strategic option for organisations to enhance products range, accessing new markets and attaining new technologies Hansen and Nohria, 2004.

Most of the acquisitions suffer due to the culture clashes. The literature has explained culture in the form of "value" having both similarities and differences Rise berg 1997. According to Jemison and Sitkin 1986, cited in Riseberg 1997 to make the acquisitions work, it is very important to find fits between the combining companies. E.g. similarities in corporate culture and management styles Nahavandi and Malekzadeh, 1988.

THE REASONS AND MOTIVES BEHIND MERGERS AND ACQUISITION

There are multiple reasons for engaging in merger and acquisition activity. Globalization, economic development, technical innovation, etc.. All these factors contribute to the growing popularity of M&A.

Growth

Growth being the reason behind M&A seems to be a straightforward statement. Companies try to strengthen corporate growth strategies. The main objective is to broaden product lines and increase the market share and finally stabilize the financial position of a company. Whether growth refers to revenue growth or to growth in profitability is the main difference, and the two may be very different.

Companies can grow in two ways

Through internal expansion or organic growth – This process of growth is slow and presents its own risk.

Through M&A’s – This process can allow companies to capture the opportunities available in the market more quickly. M&A’s enables a company to acquire a running business rather than build up a new one. (Gaughan, 2002)

Synergy

Synergies are created when the value of the combined firms involved in M&A’s process is more than the sum of their pre-acquisition. The concept of synergy is used to refer to the economies of scale at the firm level. Synergy is also said to arise from intangible assets such as goodwill, knowledge and organizational arrangements in an industry. (Thompson,1978).

Diversification

Diversification is said to be one of the most important motive for M&A activity.

According to Thompson (1978), a company which has excess of cash or credit is influenced by executive desires to growth rather than simply distributing excess resources to the shareholder INR. Also conglomerate acquisition allows companies to diversify their risk and exposure to volatile industry segments by acquiring firms in different industries.

There are many advantages of diversification. It helps to increase the value of the company through economies of scale , scope or market power(Hitt) Geographical diversification gives a company access to bigger markets and a state of depression is not likely to occur at all places at the same time and to the same extent. However, there are arguments put against diversification. Berger and Ofek (1995), found following a conglomerate acquisition, firms value drops by 13 % - 15% on an average.

Also Brealey and Myers (2004), argue that diversification is easier and cheaper for the shareholders than for the corporation and investors don’t pay premiums for diversified firms.

Economies of scale and scope

Achieving these economies of scale in the natural goal of horizontal mergers It provides the advantage of decrease in average cost of production due to increase in scale of production. Low costs is important for company’s profitability, success and survival.(Brealey and Myers,2004) Operating economies can also be achieved by combining firms at different stages of an industry which can lead to better coordination at different levels.( Alchian, 1998).

The most fundamental hypothesis is that to make the acquisition work. The two organisations must be integrated in such a way that they become as similar as possible in order to attain a mutual corporate culture Nguyen and Kleiner 2003.

According to Haspeslagh and Jemison 1991 cited in Riseberg 1997 that these hypothesis do not fully describe integration in all acquisitions. So, it indicates that, various degrees of integration should be used according to the nature of acquisition.

Culture in M&As

However, researchers such as Napier et al 1989 argues that, the acquired company mostly forced to adapt to the acquiring company’s culture and routines which may lead to complications in their adjustment to the parent company. The other way round should also be implemented, it is just a question that which of the two organizations have a better organizational culture.

In the last decade, the importance of distinguishing between national and organizational culture got

recognized by many researchers. Zaheer et al. (2003) extent the concept of culture even further by

arguing that within organizations also subcultures exist, such as professional culture. Thus cultural

differences may refer to several levels of analysis in the context of M&As: National, industry,

organizational and group level.

CHAPTER-3 COMPANY PROFILE

3.1 INTRODUCTION TO THE COMPANY

TATA GROUP OF COMPANIES

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The Tata group comprises over 90 operating companies in seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals.  The group has operations in more than 80 countries across six continents, and its companies export products and services to 85 countries.

The total revenue of Tata companies, taken together, was $83.5 billion (around Rs380,663 crore) in 2010-11.Tata companies employ over 425,000 people worldwide.

Ratan Tata is the Chairman of two of the largest private-sector-promoted philanthropic trusts in India. He is a member of the Prime Minister’s Council on Trade and Industry. He is the President of the Court of the Indian Institute of Science and of the Council of Management of the Tata Institute of Fundamental Research.He also serves on the board of trustees of Cornell University and the University of Southern California, and is a member of the Global Business Council on HIV/Aids.

The Government of India honoured Mr Tata with its second-highest civilian award, the Padma Vibhushan, in 2008.

Tata is a rapidly growing business group based in India with significant international operations. Revenues in 2007-08 are estimated at $62.5 billion (around Rs251, 543 crore), of which 61 per cent is from business outside India. The group employs around 350,000 people worldwide. The Tata name has been respected in India for 140 years for its adherence to strong values and business ethics.

The business operations of the Tata group currently encompass seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals.

The group's 27 publicly listed enterprises have a combined market capitalization of some $60 billion, among the highest among Indian business houses, and a shareholder base of 3.2 million. The major companies in the group include Tata Steel, Tata Motors, Tata Consultancy Services (TCS), Tata Power, Tata Chemicals, Tata Tea, Indian Hotels and Tata Communications.

The group’s major companies are beginning to be counted globally. Tata Steel became the sixth largest steel maker in the world after it acquired Corus. Tata Motors is among the top five commercial vehicle manufacturers in the world and has recently acquired Jaguar and Land Rover. TCS is a leading global software company, with delivery centres in the US, UK, Hungary, Brazil, Uruguay and China, besides India. Tata Tea is the second largest branded tea company in the world, through its UK-based subsidiary Tetley. Tata Chemicals is the world’s second largest manufacturer of soda ash. Tata Communications is one of the world’s largest wholesale voice carriers.

In tandem with the increasing international footprint of its companies, the group is also gaining international recognition. Brand Finance, a UK-based consultancy firm, recently valued the Tata brand at $11.4 billion and ranked it 57th amongst the Top 100 brands in the world.

Business-week ranked the group sixth amongst the ‘World’s Most Innovative Companies’ and the Reputation Institute, USA, recently rated it as the ‘World’s Sixth Most Reputed Firm.’

Founded by Jamsetji Tata in 1868, the Tata group’s early years were inspired by the spirit of nationalism. The group pioneered several industries of national importance in India: steel, power, hospitality and airlines. In more recent times, the Tata group’s pioneering spirit has been showcased by companies like Tata Consultancy Services, India’s first software company, which pioneered the international delivery model, and Tata Motors, which made India’s first indigenously developed car, the Indica, in 1998 and recently unveiled the world’s lowest-cost car, the Tata Nano, for commercial launch by end of the financial year 2008-09.

The Tata group has always believed in returning wealth to the society it serves. Two-thirds of the equity of Tata Sons, the Tata group’s promoter company, is held by philanthropic trusts which have created national institutions in science and technology, medical research, social studies and the performing arts. The trusts also provide aid and assistance to NGOs in the areas of education, healthcare and livelihoods. Tata companies also extend social welfare activities to communities around their industrial units. The combined development-related expenditure of the Trusts and the companies amounts to around 4 per cent of the group’s net profits.

Going forward, the group is focusing on new technologies and innovation to drive its business in India and internationally. The Nano car is one example, as is the Eka supercomputer (developed by another Tata company), which in 2008 is ranked the world’s fourth fastest. The group aims to build a series of world class, world scale businesses in select sectors. Anchored in India and wedded to its traditional values and strong ethics, the group is building a multinational business which will achieve growth through excellence and innovation, while balancing the interests of its shareholders, its employees and wider society.

CHAPTER -4 INTRODUCTION TO MERGERS & ACQUISITIONS

4.1 INTRODUCTION TO MERGERS & ACQUISITIONS

"The decision to invest in a new asset would mean internal expansion for the firm. The new asset would generate returns raising the value of the corporation. Mergers offer an additional means of expansion, which is external, i.e. the productive operation is not within the corporation itself. For firms with limited investment opportunities, mergers can provide new areas for expansion. In addition to this benefit, the combination of two or more firms can offer several other advantages to each of the corporations such as operating economies, risk reduction and tax advantage."

The terms merger, amalgamations, take-over and acquisitions are often used interchangeably to refer to a situation where two or more firms come together and combine into one to avail the benefits of such combinations and re-structuring in the form of merger etc., have been attempted to face the challenge of increasing competition and to achieve synergy in business operations.

MERGER VS. ACQUISITION

In a merger, the surviving company assumes all the assets and liabilities of the merged company, which ceases to exist as a separate entity.

In an acquisition, the buyer purchases some or all the assets or the stock of the selling firm legal requirements, tax considerations, and the ability to attain shareholder approval determine the type of transaction chosen.

CORPORATE RESTRUCTURING

Actions taken to expand or contract a firm’s basic operations or fundamentally change its assets or financial structure are referred as corporate restructuring.

FORMS OF CORPORATE RE-STRUCTURING

Expansion

Mergers and Acquisitions

Tender Offers

Asset Acquisition

Joint Ventures

Contraction

Spin offs

Split offs

Divestitures

Equity carve-outs

Assets sale

Corporate Control

Takeover defenses

Share repurchases

Exchange offers

Proxy contests

Changes in Ownership Structures

Leveraged buyout

Junk Bonds

Going Private

ESOPs and MLPs

EXPANSION

Expansion is a form of restructuring, which results in an increase in the size of the firm. It can take place in the form of a merger, acquisition, tender offer, asset acquisition or a joint venture.

MERGER

Merger is defined as a combination of two or more companies into a single company. A merger can take place either as an amalgamation or absorption.

Amalgamation is the type of merger that involves fusion of two or more companies. After the amalgamation, the two companies lose their individual identity and a new company comes into existence. This form is generally applied to combinations of firms of equal size.

Example: The merger of Brook Bond India Ltd., with Lipton India Ltd., resulted in the formation of a new company Brooke Bond Lipton India Ltd.

Absorption is a type of merger that involves fusion of a small company with a large company. After the merger the smaller company ceases to exist.

Example: The merger of Oriental Bank of Commerce with Global Trust Bank. After the merger, GTB ceases to exist while the Oriental Bank of Commerce expanded and continued.

TENDER OFFER

Tender offer is a corporate finance term denoting a type of takeover bid. The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corporation (the target corporation) to tender their stock for sale at a specified price during a specified time, subject to the tendering of a minimum and maximum number of shares. In a tender offer, the bidder contacts shareholders directly; the directors of the company may or may not have endorsed the tender offer proposal.

To induce the shareholders of the target company to sell, the acquirer's offer price usually includes a premium over the current market price of the target company's shares. For example, if a target corporation's stock were trading at $10 per share, an acquirer might offer $11.50 per share to shareholders on the condition that 51% of shareholders agree. Cash or securities may be offered to the target company's shareholders, although a tender offer in which securities are offered as consideration is generally referred to as an "exchange offer."

Tender offer involves making a public offer for acquiring the shares of the target company with a view to acquire management control in that company.

Example:

(1) Flextronics International giving an open market offer at Rs. 548 for 20% of paid up capital in Hughes Software Systems.

(2) AstraZeneca Pharmaceuticals AB, a Swedish firm, announced an open offer to acquire 8.4% stake in AstraZeneca Pharma India at a floor price of Rs. 825 per share.

JOINT VENTURE

A joint venture is the coming together of two or more businesses for a specific purpose, which may or may not be for a limited duration.

The purpose of the joint venture may be for the entry of the joint venture parties into a new business, or the entry into a new market, which requires the specific skills, expertise, or the investment of each of the joint venture parties.

The execution of a joint venture agreement, setting out the rights and obligations of each of the parties is usually a norm for most joint ventures.

CONTRACTION

Contraction is a form of restructuring, which results in a reduction in the size of the firm. It can take place in the form of a spin-off, split off, divestiture or an equity carve-out.

SPIN-OFF

A spin-off is a transaction in which a company distributes on a pro rata basis all of the shares it owns in a subsidiary to its own shareholders. Hence, the stockholders proportional ownership of shares is the same in the new legal subsidiary as well as the parent firm. The new entity has its own management and is run independently from the parent company. A spin-off does not result in an infusion of cash to parent company.

SPLIT-OFF

In a split off, a new company is created to take over the operations of an existing division or unit. A portion of existing shareholders receives stock in a subsidiary (new company) in exchange for parent company stock.

The logic of split-off is that the equity base of the parent company is reduced reflecting the downsizing of the firm. Hence the shareholding of the new entity does not reflect the shareholding of the parent firm. A split-off does not result in any cash inflow to the parent company.

SPLIT-UPS

In a split-up the entire firm is broken up in series of spin-offs, so that the parent company no longer exists and only the new off springs survive. A split-up involves the creation of a new class of stock for each of the parent’s operating subsidiaries, paying current shareholders a dividend of each new class of stock, and then dissolving the parent company. Stockholders in the new companies may be different as shareholders in the parent company may exchange their stock for stock in one or more of the spin-offs.

ASSET SALE

It involves the sale of tangible or intangible assets of a company to generate cash. When a corporation sells off all its assets to another company, it becomes a corporate shell with cash and/or securities as its sole assets. The firm may then distribute the cash to its stockholders as a liquidating dividend and go out of existence. The firm may also choose to continue to do business and use its liquid assets to purchase other assets or companies.

CORPORATE CONTROL

Firms can also restructure without necessarily acquiring new firms or divesting existing corporations. Corporate control involves obtaining control over the management of the firm.

Control is the process by which managers influence other members of an organization to implement the organizational strategies.

TAKEOVER DEFENSES

With the high level of hostile takeover activity in recent years, takeover defenses, both pre-bid and post-bid have been resorted to by the companies.

Pre-bid defenses also called preventive defenses are employed to prevent a sudden, unexpected hostile bid from gaining control of the company.

When preventive takeover defenses are not successful in fending off an unwanted bid, the target implements post-bid or active defenses. These takeover defenses intend to change the corporate control position of the promoters.

SHARE REPURCHASE

This involves the company buying its own shares back from the markets. This leads to reduction in equity capital of the company. This in turn strengthens the promoter’s controlling position by increasing his stake in the equity of the company. It is used as a takeover defense to reduce the number of shares that could be purchased by the potential acquirer.

EXCHANGE OFFERS

It provides one or more classes of securities of the firm. The term exchange offer necessarily involves new securities of greater market value than the pre exchange offer announcement market value.

Exchange offer involves exchanging debt for common stock, which increases leverage, or conversely, exchanging common stock for debt, which decreases leverage. They help a company to change its capital structure while holding the investment policy unchanged.

CHANGES IN OWNERSHIP STRUCTURES

GOING PRIVATE

It refers to the transformation of a public corporation into a privately held firm. It involves purchase of the entire equity interest in a previously public corporation by a small group of investors.

LEVERAGE BUYOUT (LBO)

Leveraged buyout is a financing technique where debt is used in the acquisition of a company.

The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

LBO is defined as the acquisition, financed largely by borrowings, of all the stock, or assets, of a hitherto (until now) public company by a small group of investors. This buying group may be sponsored by buy-out specialists (for example, Kohlberg, Kravis, Roberts & Co.) or investment bankers that arrange such deals

MANAGEMENT BUYOUTS (MBOs)

When the managers and/or executives of a company purchase controlling interest in a company from existing shareholders.

In most cases, the management will buy out all the outstanding shareholders and then take the company private because it feels it has the expertise to grow the business better if it controls the ownership. Quite often, management will team up with a venture capitalist to acquire the business because it's a complicated process that requires significant capital.

ESOP

In markets like USA, ESOPs are seen as an important HRD (Human Resource Development) tool. In India, the idea is just beginning to catch up. An ESOP is another incentive or compensation tool for a company.

The rationale is that stock options generate a sense of ownership among employees. Stock options tend to develop an entrepreneurial spirit among top executives since they own stock and an appreciation in stock prices, if the company does well will add to their wealth. ESOPs help in aligning individual goals with corporate goals. ESOPs also help companies to retain staff, attract talent, and motivate employees by enabling them to share the long-term growth of the company.

LIMITED PARTNERSHIP

Two or more partners united to conduct a business jointly, and in which one or more of the partners is liable only to the extent of the amount of money that partner has invested. Limited partners do not receive dividends, but enjoy direct access to the flow of income and expenses.

 This term is also referred to as a "limited liability partnership" (LLP).

The main advantage to this structure is that the owners are generally not liable for the debts of the company

TYPES OF MERGERS

Merger or acquisition depends upon purpose for which the target company is acquired.

HORIZONTAL MERGER

A horizontal merger involves merger between two firms operating and competing in the same kind of business activity.

Example: The merger of Centurion Bank and Bank of Punjab, Oriental Bank of Commerce and GTB in Banking Sector.

Tata Industrial Finance Ltd. With Tata Finance Ltd. In Finance Sector.

A big merger between Holicim and Gujarat Ambuja Cement Ltd in manufacturing sector

Idea Cellular and Escotel in telecom sector.

Daimler-Benz and Chrysler in car manufacturing sector.

VERTICAL MERGER

A vertical merger involves merger between firms that are in different stages of production or value chain. They are combination of companies that usually have buyer-seller relationships.

Backward Integration: A form of vertical integration that involves the purchase of suppliers in order to reduce dependency.

A good example would be if a bakery business bought a wheat farm in order to reduce the risk associated with the dependency on flour.

Forward Integration: A business strategy that involves a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products.

Horizontal Integration: When a company expands its business into different products that are similar to current lines.

Example: A hot dog vendor expanding into selling hamburgers would be an example of horizontal integration.

CONGLOMERATE MERGER

Conglomerate mergers are a merger between firms that are involved in totally unrelated business activities.

There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions (geographic market extension merger).

CHAPTER-5 M&A’s BY TATA GROUP & ITS ANALYSIS & INTERPRETATION

5.1 TATA MOTOR - JLR

About the acquisition

Date: - 27th March 2008

Acquirer: - Tata Motors Ltd

Target company: - Jaguar Land Rover

Stake: - 100 %

Deal amount: - US$ 2300mn ($2.3 bn)

Sector: - Automotive

TATA MOTORS

Tata Motors Limited is India's largest automobile company, with consolidated revenues of Rs.70,938.85 crores (USD 14 billion) in 2008-09

It is the leader in commercial vehicles segment, and among the top three in passenger vehicles

It is the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer

The company's 24,000 employees are guided by the vision to be "best in the manner in which we operate, best in the products we deliver, and best in our value system and ethics"

Over 4 million Tata vehicles ply on Indian roads, since the first rolled out in 1954

It has manufacturing base in India spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand) and Dharwad (Karnataka)

The company's dealership, sales, services and spare parts network comprises over 3500 touch points

Tata Motors also distributes and markets Fiat branded cars in India

Tata Motors, the first company from India's engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company

It has operations in the UK, South Korea, Thailand and Spain

In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea's second largest truck maker

In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, and subsequently the remaining stake in 2009. Hispano's presence is being expanded in other markets

In 2006, Tata Motors formed a joint venture with the Brazil-based Marcopolo, a global leader in body-building for buses and coaches to manufacture fully-built buses and coaches for India and select international markets

Tata Motors is also expanding its international footprint, established through exports since 1961

The company's commercial and passenger vehicles are already being marketed in several countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America

In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, which India and the world have been looking forward to

JAGUAR LAND ROVER

Jaguar Cars Ltd, founded in 1922, is one of the world’s premier manufacturers of luxury saloons and sports cars

Since 1948 Land Rover has been manufacturing authentic 4*4s that defines ‘breadth of capability’ in their segments

The Jaguar Land Rover business employs some 16000 people, predominately in the UK, including some 3500 engineers at two product development centres in Whitley, Coventry and Gaydon, Warwickshire

The business is a major wealth generator for the UK Jaguars exported to 63 countries, with sales to customers conducted principally through franchised dealers and importers

That Jaguar and Land Rover are two of the most well-known automotive names in the world, and that Ford had acquired them for a collective cost of about $5 billion almost a decade earlier, Tata Motors seems to have got them at a steal at $2 billion

Terms

Under the terms of the deal Ford will contribute about $600 m to JLR pension plan. Ford will continue to supply JLR for differing periods with engines, stamping and other car components, in addition to a variety of technologies. In addition Ford Motor Credit Company will provide financing for JLR and customers during a transitional period upto 12 months.

Detailed Case Study

Acquisition of British Icons

On June 02, 2008, India-based Tata Motors completed the acquisition of the Jaguar and Land Rover (JLR) units from the US-based auto manufacturer Ford Motor Company (Ford) for US$ 2.3 billion, on a cash free-debt free basis.

JLR was a part of Ford's Premier Automotive Group (PAG) and were considered to be British icons. Jaguar was involved in the manufacture of high-end luxury cars, while Land Rover manufactured high-end SUVs.

Tata Motors had several major international acquisitions to its credit. It had acquired Tetley, South Korea-based Daewoo's commercial vehicle unit, and Anglo-Dutch Steel maker Corus.

Tata Motors long-term strategy included consolidating its position in the domestic Indian market and expanding its international footprint by leveraging on in-house capabilities and products and also through acquisitions and strategic collaborations.

Analysts were of the view that the acquisition of JLR, which had a global presence and a repertoire of well established brands, would help Tata Motors become one of the major players in the global automobile industry.

Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation in the automobile industry. The company acquired Jaguar from British Leyland Limited in 1989 for US$ 2.5b.

After Ford acquired Jaguar, adverse economic conditions worldwide in the 1990s led to tough market conditions and a decrease in the demand for luxury cars. The sales of Jaguar in many markets declined, but in some markets like Japan, Germany, and Italy, it still recorded high sales.

In March 1999, Ford established the PAG with Aston Martin, Jaguar, and Lincoln. During the year, Volvo was acquired for US$ 6.45 billion, and it also became a part of the PAG In September 2006, after Allan Mulally (Mulally) assumed charge as the President and CEO of Ford, he decided to dismantle the PAG. In March 2007, Ford sold the Aston Martin sports car unit for US$ 931 million.

In June 2007, Ford announced that it was considering selling JLR.

Tata Motors also entered into long term agreements with FMC for supply of engines, stampings and other components to JLR. Other areas of transition support from Ford include IT, accounting and access to test facilities. The two companies will continue to cooperate in areas such as design and development through sharing of platforms and joint development of hybrid technologies and power train engineering.

The Ford Motor Credit Company, the credit providing arm of FMC, will continue to provide financing for Jaguar Land Rover dealers and customers for a transition period lasting for a period of 12 months. Tata Motors is in an advanced stage of negotiations with leading auto finance providers to support the Jaguar Land Rover business in the UK, Europe and the US, and is expected to select financial services partners shortly.

Financing the Deal

On March 26 2008, Tata Motors entered into an agreement with Ford for the purchase of JLR. Tata Motors agreed to pay US$ 2.3 billion in cash for a 100% acquisition of the business of JLR. As part of the acquisition, Tata Motors did not inherit any of the debt liabilities of JLR the acquisition was totally debt free.

Tata Motors raised $3 billion (about Rs. 12000 crore) through bridge loans for 15 months from a clutch of banks, including JP Morgan, Citigroup, and SBI

The Company chartered out plans to raised Rs, 7200 crore through three simultaneous but unlinked rights issue, the proceeds of which will be used to part-finance the JLR deal of Rs.9228.75 crore. The precise terms of the issue (the ratio at which these securities will be offered, offer price and the conversion price) will be decided when the issue are ready to be made

The rights issue will raise the equity capital of Tata Motors by 30-35 percent by March 2009. The company also plans to raise $500-600 million through an issue of securities in the foreign markets. The company will share the date of listing at a later date.

The acquisition of JLR was done through the company’s wholly owned subsidiary TML Holdings (UK).

The Challenges

Morgan Stanley reported that JLR's acquisition appeared negative for Tata Motors, as it had increased the earnings volatility, given the difficult economic conditions in the key markets of JLR including the US and Europe. Moreover, Tata Motors had to incur a huge capital expenditure as it planned to invest another US$ 1 billion in JLR. This was in addition to the US$ 2.3 billion it had spent on the acquisition. Tata Motors had also incurred huge capital expenditure on the development and launch of the small car Nano and on a joint venture with Fiat to manufacture some of the company's vehicles in India and Thailand. This, coupled with the downturn in the global automobile industry, was expected to impact the profitability of the company in the near future

The Road Ahead

Tata Motors had formed an integration committee with senior executives from the JLR and Tata Motors, to set milestones and long-term goals for the acquired entities. One of the major problems for Tata Motors could be the slowing down of the European and US automobile markets. It was expected that the company would address this issue by concentrating on countries like Russia, China, India, and the Middle East.

Various Ratios Have Been Calculated To Analyze the Impact of M&A on Tata Motors:

Operating Profit Margin Ratio

Gross Profit Margin Ratio

Net Profit Margin Ratio

Return on Capital Employed Ratio

Debt Equity Ratio

Earnings Per Share (EPS)

The merger between the Tata Motors and JLR took place in the year 2008-2009. Hence below analysis has been done 2 years prior to the merger i.e. during 2006-2007, 2007-2008 and 2 years after the merger i.e. 2009-2010, 2010-2011.

OPERATING PROFIT MARGIN RATIO

The operating profit margin ratio indicates how much profit a company makes after paying for variable costs of production such as wages, raw materials, etc. It is expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations. Phrased more simply, it is the return achieved from standard operations and does not include unique or one time transactions. Terms used to describe operating profit margin ratios this includes operating margin, operating income margin, operating profit margin or return on sales (ROS).

Operating Profit Margin Ratio = Operating Profit * 100

Net Sales

OPERATING PROFIT MARGIN RATIO (%)

2006-2007

2007-2008

2008-2009

(Merger b/w Tata Motors & JLR)

2009-2010

2010-11

Operating Profit

2,586.51

3,030.52

1,723.10

4,032.83

4,705.72

Net Sales

26,664.25

28,767.91

25,660.67

35,373.29

47,957.24

OPERATING PROFIT MARGIN RATIO (%)

9.700291589

10.53437667

6.714945479

11.40077725

9.812324479

ANALYSIS

As we can see from the graph in the year 2008-09 the operating profit margin was 6.71% and in the year 2009-2010 i.e. post merger the ratio is 11.40% and in the year 2010-11 it is 9.81%.

So overall we can say that this ratio has comparatively increased post merger.

GROSS PROFIT MARGIN RATIO

A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

Also known as "gross margin".

Gross Profit Margin Ratio = Gross Profit * 100

Net Sales

GROSS PROFIT MARGIN RATIO (in %)

2006-2007

2007-2008

2008-2009

(Merger b/w Tata Motors & Jaguar)

2009-2010

2010-2011

Operating Profit

2,586.51

3,030.52

1,723.10

4,032.83

4,705.72

Depreciation

586.29

652.31

874.54

1,033.87

1,360.77

Gross Profit

2,000.22

2,378.21

848.56

2,998.96

3,344.95

Net Sales

26,664.25

28,767.91

25,660.67

35,373.29

47,957.24

Gross Profit Ratio (%)

7.501504824

8.266884873

3.306850523

8.478035263

6.97485927

ANALYSIS

Again if we have look at the graph it has been seen that gross profit has been lowest in the year 2008-09, the year when Tata Motors acquired JLR i.e. 3.30% but post merger it has significantly increased to 8.47% in the year 2009-10 and in the year 2010-11 it is 6.97%.

So overall if we compare pre merger and post merger than gross profit is considerably stable except in the year 2008-09 when it is lowest i.e.3.30%.

NET PROFIT MARGIN RATIO

Net profit divided by net revenues, often expressed as a percentage. This number is an indication of how effective a company is at cost control. The higher the net profit margin is, the more effective the company is at converting revenue into actual profit. The net profit margin is a good way of comparing companies in the same industry, since such companies are generally subject to similar business conditions.

Net Profit Margin Ratio = Net Profit * 100

Net Sales

NET PROFIT MARGIN RATIO (in %)

2006-2007

2007-2008

2008-2009

(Merger b/w Tata Motors & Jaguar)

2009-2010

2010-2011

Net Profit

1850.49

2002.24

967.4

2214.36

1793.6

Net Sales

26,664.25

28,767.91

25,660.67

35,373.29

47,957.24

NET PROFIT MARGIN RATIO (in %)

6.939966434

6.95997728

3.769971712

6.259977514

3.739998382

ANALYSIS

If we compare net profit pre and post merger than it can be seen that it is comparatively higher pre merger. In the year 2008-2009 the NP ratio is 3.76% which is very low but it has then increased to 6.25% and again in the year 2010-11 it has again fallen down to 3.73%.

So overall the Net Profit Margin Ratio is fluctuating.

RETURN ON CAPITAL EMPLOYED

A ratio that indicates the efficiency and profitability of a company's capital investments. It is calculated by comparing the profit earned and the capital employed to earn it.

ROCE = Profit before Interest, tax and dividends (EBIT) * 100

Capital Employed

PARTICULARS

2006-2007

2007-2008

2008-2009

(Merger b/w Tata Motors & Jaguar)

2009-2010

2010-2011

CAPITAL EMPLOYED

12062.74

16415.5

27610.76

47442.8

36177.42

EBIT

3114.6

3112.38

1769.85

4919.8

3686.48

ROCE (%)

25.82000441

18.96000731

6.410001029

10.3699613

10.19000249

ANALYSIS

ROCE is very important ratio for any firm. For Tata Motors unfortunately this ratio has fallen down post merger. In fact if we have a look at the graph this ratio is highest in the year 2006-2007 i.e. 25.82% but is falling to 18.96% in the year 2007-08.

This ratio is lowest in the year 2008-09 i.e. 6.41%, the year when the merger took place and then again raised to 10.36% in 2009-10

DEBT EQUITY RATIO

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

DEBT EQUITY RATIO = DEBT

EQUITY

PARTICULARS

2006-2007

2007-2008

2008-2009

(Merger b/w Tata Motors & Jaguar)

2009-2010

2010-2011

DEBT

4009.14

6280.52

13165.56

16625.91

15898.75

EQUITY

6795.15

7850.65

12420.33

14844.56

19873.43

DEBT EQUITY

RATIO

0.590000221

0.8

1.060000821

1.120000189

0.800000302

ANALYSIS

This ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally the debt-equity ratio of 2:1 is considered safe. Lower than 2:1 Debt equity ratio provides sufficient protection to long term lenders.

Overall in case of Tata Motors this ratio is below 2:1 which is a good sign for the firm as it shows that the firm is able to meet its long term liabilities.

But if we compare this ratio pre merger and post merger than this ratio has increased post merger i.e. in the year 2008-09 and is highest in the year 2009-10 i.e. 1.12.

EARNING PER SHARE (EPS)

Overall Profitability of the company can also be judged by calculating ‘earning per share’. In the context, earnings refer to profit available for equity shareholders.

EPS = Net Profit (after Interest, Tax & Dividend on Preference Shares)

Number of Equity Shares

PARTICULARS

2006-2007

2007-2008

2008-2009

(Merger b/w Tata Motors & Jaguar)

2009-2010

2010-2011

Earnings Per Share (Rs)

49.65

52.63

19.48

39.26

28.55

ANALYSIS

As far as EPS is concerned the higher the ratio the better it is for equity shareholders as earning here refer to profit available for equity shareholders.

But again this ratio has decreased post merger and acquisition. In the year 2007-08 this ratio has been highest i.e. 52.63 but in the next year i.e. 2008-09 (the year when merger took place) it has fallen down to 19.48.

Although it has again risen in the next year to 39.26 in the year 2009-2010 but comparatively it has fallen down post merger, which is not a very good sign for the firm.

5.2 TATA STEEL-CORUS

About The Acquisition

Date: - 30th January 2007

Acquirer: - Tata Steel Limited

Target company: - Corus Plc.

Stake: - 100 %

Deal amount: - US$ 12201 m ($12.2 billion)

Sector: - Steel sector

TATA-STEEL

Founded in 1907,by Jamsedji Nusserwanji Tata

Tata Steel is listed on BSE and NSE and employs about 82700 (2007) people

It started with a production capacity of 1,00,000 tones has transformed into a global giant

Its revenue in 2005-2006 was US$ 5.0 b

It has a main steel plant located at Jamshedpur

The Company also has three greenfield steel projects in the states of Jharkhand, Chattisgarh and Orissa

CORUS STEEL

Corus is Europe's second largest steel producer formed on 6th October 1999

Company has four divisions: Strip product, Long product, Aluminum and Distribution and Building system

Total debt of Corus was GBP 1.6 billion

It has revenues of $ 18.06 billion and profit of $ 626 million

Detailed Case Study

On January 31, 2007, India based Tata Steel Limited (Tata Steel) acquired the Anglo Dutch steel company, Corus Group Plc (Corus) for US$ 12.20 billion. The merged entity, Tata-Corus, employed 84,000 people across 45 countries in the world. It had the capacity to produce 27 million tons of steel per annum, making it the fifth largest steel producer in the world as of early 2007.

Before the acquisition, the major market for Tata Steel was India. The Indian market accounted for sixty nine percent of the company's total sales. Almost half of Corus' production of steel was sold in Europe (excluding UK). The UK consumed twenty nine percent of its production.

After the acquisition, the European market (including UK) would consume 59 percent of the merged entity's total production.

Commenting on the acquisition, Ratan Tata, Chairman, Tata & Sons, said, "Together, we are a well balanced company, strategically well placed to compete at the leading edge of a rapidly changing global steel industry"

Financing the deal

Tata Steel outbid the Brazilian steelmaker Companhia Siderurgica Nacional's (CSN) final offer of 603 pence per share by offering 608 pence per share to acquire Corus.

Tata Steel had first offered to pay 455 pence per share of Corus, to close the deal at US$ 7.6 billion on October 17, 2006. CSN then offered 475 pence per share of Corus on November 17, 2006.

Finally, an auction was initiated on January 31, 2007, and after nine rounds of bidding, TATA Steel could finally clinch the deal with its final bid 608 pence per share, almost 34% higher than the first bid of 455 pence per share of Corus.

Expert’s opinion

Many analysts and industry experts felt that the acquisition deal was rather expensive for Tata Steel and this move would overvalue the steel industry world over.

Commenting on the deal, Sajjan Jindal, Managing Director, Jindal South West Steel said, "The price paid is expensive...all steel companies may get re-rated now but it's a good deal for the industry." Despite the worries of the deal being expensive for Tata Steel, industry experts were optimistic that the deal would enhance India's position in the global steel industry with the world's largest and fifth largest steel producers having roots in the country. Stressing on the synergies that could arise from this acquisition, Phanish Puram, Professor of Strategic and International Management, London Business School said, "The Tata-Corus deal is different because it links low-cost Indian production and raw materials and growth markets to high-margin markets and high technology in the West.

The cost advantage of operating from India can be leveraged in Western markets, and differentiation based on better technology from Corus can work in the Asian markets."

Tata Steel Vs CSN: The Bidding War

There was a heavy speculation surrounding Tata Steel's proposed takeover of Corus ever since Ratan Tata had met Leng in Dubai, in July 2006. On October 17, 2006, Tata Steel made an offer of 455 pence a share in cash valuing the acquisition deal at US$ 7.6 billion. Corus responded positively to the offer on October 20, 2006.

Agreeing to the takeover, Leng said, "This combination with Tata, for Corus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms." In the first week of November 2006, there were reports in media that Tata was joining hands with Corus to acquire the Brazilian steel giant CSN which itself was keen on acquiring Corus. On November 17, 2006, CSN formally entered the foray for acquiring Corus with a bid of 475 pence per share. In the light of CSN's offer, Corus announced that it would defer its extraordinary meeting of shareholders to December 20, 2006 from December 04, 2006, in order to allow counter offers from Tata Steel and CSN...

Synergies

There were many likely synergies between Tata Steel, the lowest-cost producer of steel in the world, and Corus, a large player with a significant presence in value-added steel segment and a strong distribution network in Europe. Among the benefits to Tata Steel was the fact that it would be able to supply semi-finished steel to Corus for finishing at its plants, which were located closer to the high-value markets...

The Pitfalls

Though the potential benefits of the Corus deal were widely appreciated, some analysts had doubts about the outcome and effects on Tata Steel's performance. They pointed out that Corus' EBITDA (earnings before interest, tax, depreciation and amortization) at 8 percent was much lower than that of Tata Steel which was at 30 percent in the financial year 2006-07

Various Ratios Have Been Calculated To Analyze the Impact of M&A on Tata Steel:

Operating Profit Margin Ratio

Gross Profit Margin Ratio

Net Profit Margin Ratio

Return on Capital Employed Ratio

Debt Equity Ratio

Earnings Per Share (EPS)

The merger between the Tata Steel and Corus took place in the year 2006-2007. Hence below analysis has been done 2 years prior to the merger i.e. during 2004-2005, 2005-2006 and 3 years after the merger i.e. 2007-2008, 2008-2009 and 2009-2010.

OPERATING PROFIT MARGIN RATIO

Operating Profit Margin Ratio = Operating Profit * 100

Net Sales

OPERATING PROFIT MARGIN RATIO (%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

(Merger b/w Tata Steel & Corus)

Operating Profit

5,956.02

5,884.22

6,913.75

8,244.54

9,176.44

8,905.59

Net Sales

14,489.70

15,132.09

17,452.66

19,654.41

24,348.32

24,940.65

ANALYSIS

By having a glance at the graph we can see that pre merger as well as post merger the operating profit margin ratio has been overall the same.

In the year 2004-05 it is 41.10% and then decreased to 38.85% in the year 2005-06, in the year 2006-07 when the merger took place at that the time ratio was 39.61% but after the merger it has again increased to 41.94 (which is highest) in the year 2007-08 but after that is had fallen down to 37.68% in the year 2008-09.

GROSS PROFIT MARGIN RATIO

Gross Profit Margin Ratio = Gross Profit * 100

Net Sales

GROSS PROFIT MARGIN RATIO (in %)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

(Merger b/w Tata Steel & Corus)

Gross Profit

5,820.50

5,872.76

6,953.13

7,409.70

8,203.00

7,821.38

Net Sales

14,489.70

15,132.09

17,452.66

19,654.41

24,348.32

24,940.65

Gross Profit Ratio(%)

40.1699138

38.80997271

39.83994417

37.69993604

33.69020943

31.35996857

ANALYSIS

By comparing the Gross Profit Ratio both pre and post merger we can see that post merger this ratio has been decreased as compared to pre merger.

This ratio is highest in the year 2004-05 i.e. 40.16 and lowest in the year 2009-10 i.e. 31.53%

NET PROFIT MARGIN RATIO

Net Profit Margin Ratio = Net Profit * 100

Net Sales

NET PROFIT MARGIN RATIO (in %)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

(Merger b/w Tata Steel & Corus)

Net Profit

3437

3447.09

4106.6

4605.02

5135.06

4978.15

Net Sales

14,489.70

15,132.09

17,452.66

19,654.41

24,348.32

24,940.65

NET PROFIT MARGIN RATIO (in %)

23.72029787

22.77999933

23.52993756

23.42995796

21.08999717

19.959985

ANALYSIS

There is not much change in Net Profit before and after the merger except in the year 2009-10 where it is lowest i.e. 19.95%.

In the year 2004-2005 it is highest i.e. 23.72 then in the next year it has reduced to 22.77. In the year 2006-07 when the merger took place then again it is increased to 23.52%.

Overall this ratio is stable.

RETURN ON CAPITAL EMPLOYED

ROCE = Profit before Interest, tax and dividends (EBIT) * 100

Capital Employed

PARTICULARS

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

(Merger b/w Tata Steel & Corus)

EBIT

5446

5361.7

6456.58

7996.34

8806.11

9063.49

CAPITAL EMPLOYED

9714.5

12263.72

23300.5

46734.89

58668.2

69398.8

ROCE (%)

56.06052808

43.72001318

27.71004914

17.11000069

15.01002247

13.06000968

ANALYSIS

By simply having a look at the graph it has been clearly seen that this ratio has been continuously decreasing. Post merger there has been significant fall in the ROCE ratio.

This ratio has been highest in the year 2004-05 i.e. 56.06% and lowest in the year 2009-2010 i.e. 13.05%.

DEBT EQUITY RATIO

DEBT EQUITY RATIO = DEBT

EQUITY

PARTICULARS

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

(Merger b/w Tata Steel & Corus)

DEBT

2,739.70

2,516.15

9,645.33

18,021.69

26,946.18

25,239.20

EQUITY

7024.8

9677.5

13991.78

16686.75

20109.08

37116.47

DEBT EQUITY RATIO

0.390003986

0.26

0.689356894

1.08

1.340000637

0.680000011

ANALYSIS

As we know that the lower this ratio is the better it is and in this case this ratio is lowest pre merger and it has increased post merger. This ratio is lowest in the year 2005-06 which is before merger and is highest in the year 2008-09 i.e. 1.34 which is after the merger.

EARNING PER SHARE (EPS)

Overall Profitability of the company can also be judged by calculating ‘earning per share’. In the context, earnings refer to profit available for equity shareholders.

EPS = Net Profit (after Interest, Tax & Dividend on Preference Shares)

Number of Equity Shares

PARTICULARS

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

(Merger b/w Tata Steel & Corus)

EARNING PER SHARE (Rs.)

62.77

63.35

72.74

63.85

69.7

56.37

ANALYSIS

The higher the ratio the better it is but here in this case as we can see from the graph that there is not much change in this ratio before and after the merger. This ratio is highest in the year 72.74 the year in which the merger took place.

5.3 TATA CHEMICALS – GENERAL CHEMICALS

About the acquisition

Date: - January 2008

Acquirer: - Tata Chemicals Limited

Target company: - General Chemicals Industrial Products Inc.

Stake: - 100 %

Deal amount: - US$ 1005 m

Sector: - Plastic and Chemicals

TATA CHEMICALS

Tata Chemical Ltd (TCL) Group is world’s third largest soda ash producer with a combined capacity of 2.9 million tone and a market leader in soda ash and salt in India. TCL is rapidly adding capacity by organic and inorganic means. It is showing robust growth with strong volume growth in soda ash, cement, salt, and phosphatic fertilizer.

GENERAL CHEMICALS INDUSTRIAL PRODUCTS INC.

General Chemical is one of the world's leading and most experienced producers of soda ash. They supply an essential raw material used to make a range of familiar everyday products, such as glass, soap, powdered detergent, paper, textiles, and even food.

They have produced soda ash for more than 100 years and are currently one of the Top 5 global producers. The breadth of practical experience and ever increasing production efficiency in mining and processing ensures high-quality soda ash. Their expertise in shipping and storage enables them to get soda ash when and where customers need it.

Detailed case study

After global acquisitions that made it the fifth largest steelmaker and the second largest branded tea bag owner worldwide, the Tata group was poised to become the second largest soda ash manufacturer in the world.

Tata Chemicals had signed an agreement to acquire 100 per cent stake in US-based General Chemical Industrial Products Inc. for $ 1.005 billion (approx. Rs 4,000 crore).

GCIL is a privately held debt-free company with revenues of $ 400 million and a healthy bottom line.

Tata Chemicals was also looking to buy Harbinger Capital Partners, a private equity firm that owns a majority stake in GCIL.

GCIL had a capacity of 2.5 million tones of soda ash, while Tata Chemicals was already at number three position globally (at 3 million tons) after its acquisition of the UK-based Brunner Mond in 2005. GCIL has access to the world’s largest and most economically recoverable trona ore deposits (which is converted into soda ash) in Wyoming in the US, said Mr. Khusrokhan.

After the buy, over 50 percent of Tata Chemicals’ capacity would be through the natural route, providing both sustainability as well as a natural hedge against the commodity cycle, he said.

As a thumb rule, natural soda ash is more economical and delivers higher margins, said Mr. R Mukundan, Executive Vice-President, and Chemicals.

On picking up a US asset in the backdrop of a slowdown in that country, Mr. Mukundan said that soda ash is in the growth phase with worldwide demand for various applications and that margins are picking up.

Forty per cent of TCL’s revenues are from international sales. The acquisition would be funded through a mixture of equity and debt.

The company’s stock lost over 7 per cent on the BSE, to close at Rs 305 from previous close of Rs 328.

Tata Chemicals now has manufacturing locations in four continents and access to consumers around the world, including new markets it was not earlier in, viz. North America, Latin America and certain markets in the Far East.

Benefits

The acquisition was timely from an Indian viewpoint as the company was picking up US assets at a time when the rupee was strong.

According to analysts, this would clearly pitch Tata Chemicals into the number two position worldwide.

More than 50 per cent of Tata Chemicals’ capacity would be through the natural route which would lead to sustainability in terms of margins.

A 100 per cent equity stake in General Chemical Industrial Products (GCIP), a US-based soda ash maker, will endow Tata Chemicals with substantial global scale and manufacturing cost advantages in its soda a