Fiat may join Tata to buy Jaguar & Land Rover
Forbes Magazine is reporting that Fiat will join with Indian conglomerate Tata Group in making a bid for the Jaguar and Land Rover unit of Ford Motor Company.
By way of background, Tata has publicly expressed an interest in purchasing Jaguar/Land Rover, saying that it seeks to increase its “global reach.” Tata is an Indian conglomerate with interests in textiles, hotels, steel, consumer goods, automobile and truck manufacturing, and chemicals. It has been actively expanding outside the Indian market and last year bought Corus Steel in Britain, a deal that was the largest buy-out of a British company by a foreign company in Great Britain’s history.
But there is another Indian automaker also interested in Jaguar/Land Rover. Mahindra & Mahindra, part of the Mahindra Group, began by building Jeeps under license, expanded into trucks and farm tractors (it’s the worlds third largest tractor manufacturer), and is now the largest manufacturer of SUVs in India. It manufactures passenger cars in conjunction with Renault and is developing heavy trucks in a venture with International Truck, and has also become a presence in the automotive parts and components industry. The company exports into developing country markets, including Russian, Latin American and African markets. It also operates manufacturing operations in China.
There have been rumors for some time that the Tata bid might be part of a deal with Fiat. It has previously been reported that Fiat declined to bid on the Ford units by itself. Fiat’s CEO, Sergio Marchionne, earlier stated that his goal is the improvement of Fiat’s credit rating to investment grade and that he did not consider purchasing a money losing auto manufacturer as a step in that direction.
But Italian financial newspaper Finanza e Mercati is reporting that Fiat will get in on the action, through an arrangement under which Tat will make the bid and Fiat will later buy a minority stake in Jaguar and Land Rover. The paper also reported that Tata has set aside a reserve of $1.5 billion for its bid. Fiat officials declined to comment on the report, though they acknowledged that Fiat and Tata have several other joint ventures.
There are a number of interesting points to the report.
First, it is said that Mahindra & Mahindra is primarily interested in Land Rover and really doesn’t want Jaguar. Ford has no interest in selling the two brands separately. That means that Mahindra would have to take Jaguar to get Land Rover and then support and develop the Jaguar brand. It seems unlikely that it could sell off the unit separately. That may, ultimately, make the deal less interesting to the company. Also, it is believed that the Mahindra contribution is supported, in part, by private equity groups. Their ability to raise funds in the current market may be questionable.
Second, the $1.5 billion Tata is reported to have set aside for the purchase is exactly half of the $3 billion that Ford wants for Jaguar/Land Rover. It is not clear whether Fiat would be adding to that amount.
However, joining with Fiat in the Jaguar/Land Rover deal would give Tata a partner with knowledge and expertise in the Western European market which would be a compliment to Tata’s expertise in India and other developing country markets. It would also give Fiat access to two established brands that fit segments of the market that are not currently much occupied by the Fiat brand. Moreover, letting Tata take the lead in any deal for Jaguar and Land Rover would probably allow Fiat to avoid any negative effect on its credit rating from a purchase of the unit.
Tata has a history of getting what it wants. Increasingly, it is looking like the Tata Group is likely to end up owning Jaguar and Land Rover.