India's Tata purchases Jaguar, Land Rover: union
NEW DELHI, March 26, 2008 (AFP) — India's Tata Motors has reportedly clinched a deal to buy British luxury icons Jaguar and Land Rover from US carmaker Ford, with an official announcement expected later on Wednesday.
The multi-billion dollar deal comes as Tata looks to gain a foothold outside the subcontinent, but analysts question how the Indian firm -- maker of the Nano, the world's cheapest car -- will absorb the two high-end marques.
The deal has been estimated at up to three billion dollars but most reports have put the price tag at around two billion dollars. A company official said the deal would be formally announced later in the day.
But the sale of two of Britain's most storied industrial firms was confirmed by Tony Woodley, joint leader of Britain's biggest union Unite, which had supported India's top vehicle maker in its bid.
"We would have much preferred Ford to keep the companies in the family, so to speak, especially with Land Rover being so profitable," Woodley said in a brief statement received in London.
"But with the commitments Tata have given to the future of Jaguar-Land Rover and the long-term supply agreements for components, especially engines from Bridgend and Dagenham (Ford sites in Britain), we're obviously pleased."
The purchase by the company, headed by luxury car enthusiast Ratan Tata, comes amid an economic downturn which has put the squeeze on demand for prestige vehicles.
In January, Tata unveiled the Nano at a price of 2,500 dollars, 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 percent, 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 percent of its passenger car market, and is keen to expand beyond Asia.
Tata, part of the giant Tata Group's tea-to-outsourcing empire, 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 dollars 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 three- billion-dollar 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 one billion dollars in domestic and or 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 sub-prime 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.
