India’s Tata Motors said on Wednesday it had bought British luxury icons Jaguar and Land Rover from struggling United States carmaker Ford for $2,3-billion as it expands its global reach.
The all-cash deal is part of Tata’s efforts to grow outside Asia, but analysts have questioned how the Indian firm — maker of the Nano, the world’s cheapest car — will absorb the two high-end marques into its operations.
“We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business,” Tata group chairperson Ratan Tata said, pledging to keep the identities of the famous brands “intact”.
Tata Motors, part of the sprawling tea-to-outsourcing Tata Group empire, said the “total amount to be paid in cash” would be $2,3-billion and added Ford would contribute up to about $600-million to the Jaguar and Land Rover pension plans.
The purchase, which has been the subject of speculation for months, comes amid an economic downturn that has put the squeeze on demand for prestige vehicles.
In January, Tata unveiled the Nano at a price of $2 500, hoping that the no-frills auto could revolutionise travel for millions in India and elsewhere.
But with the acquisition, Tata would be in the unusual position of making the cheapest car in the world as well as some of the most expensive.
Of late, tough global economic conditions have put sales of expensive cars into reverse. US and European sales of Jaguar fell by over 30%, year-on-year, during the first two months of 2008.
“Both brands are already experiencing declining sales,” said Aniket Mhatre, auto analyst at Mumbai brokerage Prabhudas Lilladher.
“The US is going through a slowdown so sales [of luxury vehicles] are not going to be that good.”
Tata currently controls more than half of India’s truck market and nearly 20% of its passenger car market, and is keen to expand beyond Asia.
The company is looking at making a major technological leap by gaining access to the sophisticated engines of Land Rover and Jaguar.
Troubled US giant Ford, which has lost $15-billion over the last two years, announced it was selling the two brands last year as part of a restructuring.
But analysts have expressed concern that Tata is taking on too much debt and pension-fund liabilities — and say it may have trouble absorbing the high-cost marques into its conventional vehicle line-up.
Tata has declined comment on reports it is planning to launch a $3-billion syndicated loan, much of it bridge financing, to cover its working capital needs for the purchase.
But it has announced plans to additionally raise up to $1-billion in domestic and foreign markets to fund its domestic and global expansion.
Tata, whose long-term credit is already rated one notch below investment grade, is seeking to raise funds in a difficult global market climate, with the US-led subprime crisis making investors shun all but the safest debt.
The cost of borrowing overseas has risen sharply since last July, analysts said, when Tata’s interest in the Ford luxury brands was first reported.
“It will put pressure on the ratings,” said Anshukant Taneja, credit analyst at Standard and Poor’s in Singapore. — AFP