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CASE STUDY on RIL-RPL MERGER and TATA-JAGUAR ACQUISITION

SUBMITTED TO:
MS. POOJA PATEL

SUBMITTED BY:
1. 2. 3. 4. 5.
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MERGER & ACQUISITION

MISTRY OJAL MEHTA SHRADDHA KABRA KETAN JASANI PAYAL MEHTA NIKITA

(117500592001) (117500592004) (117500592039) (117500592042) (117500592046)

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Agenda
Concept of Merger A case of merger of RIL & RPL Concept of Acquisition A case of acquisition of Jaguar & Land Rover by Tata Motors

Concept of Merger
A merger is a strategy where two companies agree to combine their operations. Once merger happens, one company survives and the other loses its corporate identity Merger through absorption: Absorption is a combination of two or more companies into an existing company. All companies except one lose their identity in such a merger

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Cont
Types of mergers

Glance at both entities:

Reliance Industries Limited(RIL) India's largest private sector company on all major financial parameters It is the first private sector company from India to feature in the Fortune Global 500 list of 'World's Largest Corporations' and ranks 103rd amongst the world's Top 200 companies in terms of profits

Reliance Petroleum Limited (RPL)

HORIZONTAL VERTICAL CONGLOMERATE

It is a subsidiary of Reliance Industries Limited With an annual crude processing capacity of 580,000 barrels per stream day (BPSD), RPL will be the sixth largest refinery in the world
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Merger of RIL and RPL

Cont
On 8th April 2002 the merger received a nod from the directors of RIL an RPL They have recommended an exchange ratio of one share of RIL for every 11 shares of RPL Under the proposed terms of the merger, shares of RPL held by RIL, representing 28% of RPLs equity share capital, cancelled RPL shares held by other RIL associates, representing 14% of RPLs equity share capital, exchanged into RIL shares, and constituted 4.7% of the fully diluted equity share capital of RIL, with a value of over Rs. 2,100 crores (US$ 0.43 billion) at prevalent market prices

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Synergy of Merger
Sales Tax benefit

Impact of Merger (2002)

largest landmark in Indian corporate history Turnover: Rs 58,000 crore (US$ 13.84 bn) Annualized Net Profit: Rs 4,000 crore (US$ 954 mn) Total Sales: 3 per cent of India's GDP

Tax shield Benefit Strong Balance Sheet of the combined entity Risk Diversification

Tax Contribution: 10 per cent of total indirect tax revenues of the Central government Total Exports: 5 per cent of India's total exports

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Cont...
In April 2002, board of RIL approved a proposal to merge RPL The company's share price as also the benchmark index Sensex reacted negatively RIL shares had dropped 2.85 per cent to Rs 312.95 RIL had stated that the deal would lead to a 32 per cent increase in RIL's equity But it was not successful attempt, which results into merger of RIL and RPL in 2009 again

Merger of RIL-RPL (2008-2009)

Scheme of Merger Merger: : Present RPL was incorporated in October 24, 2005 to set up the second mega refinery complex The merger was expected to happen owing to the strategic fit and the changes in the global scenario To enjoy Economies of Scale in production and refinery of petrochemicals To minimize the cost of capital To capitalize the cash flow of RPL

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Cont...
The merger resulted in the creation of a petrochemical behemoth which encompassed the entire value chain in the business of petroleum The merger created a new entity having combined market value of about Rs.233,384 crores After the merger, became one of the worlds largest refineries having largest capacity at a single location Became the fifth largest polypropylene manufacturer

Cont...
Two firms function as separate entities from the accounting point of view The tax benefits available to RIL as an Export Oriented Unit & to RPL as a Special Economic Zone Gave RIL greater flexibility in operational planning RPL had its IPO in April 2006 where RIL had 75% stake In November 2007 only it became almost clear that RIL might take a step of merging RPL

Reasons for Merger

1. Synergy Combined entity can often reduce the fixed costs and other operating costs The nature of the existing refinery and the new refinery is same So, the improved capacity and the complexity would give RIL the necessary reduction in the costs of operations

Cont...
3. Economy of scale
Merged entity would be the worlds largest refining capacity at a single location

4. Taxation Tax benefits is another major incentive

2. Increased revenue or market share The merger would increase its market power by capturing increased market share to set prices

But here merger will be tax neutral Both the entities will continue to enjoy the same tax benefits

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Swap ratio
1:16 For every 16 shares of RPL, 1 share of RIL issued of rs 10. CRISIL gave rating of AAA to RIL share 4.4% increase in equity base from Rs 1,574 crore shares to Rs 1,643 crore Resulted in the fall in the promoter holding by 2% from 49% to 47% equity will be diluted due to the merger to the extent of 2. %

Promoters Stake % No of shares No of new shares as per swap ratio 75.39 339.21 21.20

Non promoters 24.62 110.79 6.92

Particulars Promoters' shares Held by RIL Subsidiaries Banks and FIs MF FIIs Depository receipts Public total
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Pre merger 49 6 6.5 2.5 15.5 3.7 16.7 100

Post merger 46 5.7 6.9 2.7 15.1 3.6 19 100

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Post merger results

Transformed RIL to be among worlds 50 most profitable companies

ACQUISITION
Acquisition refers to a situation where one firm acquires another and the later ceases to exist An acquisition occurs when one company takes controlling, interest in another firm or its legal subsidiary or selected assets of another firm A firm that attempts to acquire or merge with another company is called an acquiring company A target company is a firm that is being solicited by the acquiring company The assets of the dissolved firm would be owned by the acquiring firm The shareholders of the dissolved firm are paid either cash or given shares in acquiring company

gained significantly from higher financial strength and flexibility Produced 1.24 million barrels of oil a day Helped the combined entity to save on income tax and dividend distribution tax created huge market value of a whopping Rs 2,33,000 cr. Increased the cost efficiency as merger brought down the costs of Inter-company transfers & operational costs which further lead to improving the financial efficiency
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A Bird view

Location: Dearborn, Michigan Location: Mumbai, India (HQ) Founded: J R D Tata in 1945 Competitors: Ashok Leyland Brand names: NANO, Starbus CEO: Ratan Tata
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Founded: 1903 by Henry Ford Competitors: General Motors, Toyota Brand names: Volvo, Mazda, Jaguar and Land Rover CEO: Alan Mulally
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Maruti,

M&M,

Why Ford wanted to sell ?

12th June 2007

The Deal Process

Announcement from Ford that it plans to sell Land Rover and Jaguar Major bidders were identified namely; Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management Ford announced Tatas as the preferred bidders

Jaguar had not made any profit for ford, so they started calling Jaguar as dog Even though LR made 18% profit, nevertheless it is not what ford wanted Bringing down production costs and turning around the company successfully was the challenge - a test that Ford failed Ford made the heaviest loss in 2006 i.e. $12.6 billion in its 103-year history
2nd June 2008 26th March 2008 3rd Jan 2008 August 2007

Ford agreed to sell its Jaguar Land Rover operations to Tata Motors

The acquisition was complete

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How the deal was finances?

$ 2.3 billion paid to ford Tata Motors $ 0.7 billion towards WC $ 3 billion bridge loan

How TaMo planned to re-finance $ 3 billion bridge loan

SPV 1 : TML Holding Pte Ltd.

SPV 1 Singapore

SPV 2 : Jaguar Land Rover Ltd. TaMo raised $ 3 billion bridge loan from Citi group and JP Morgan for a period of 15 months

SPV 2 UK

$ 2.3 billion was paid directly to Ford to acquire full ownership of Jaguar & Land Rover

Ford
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rest $ 0.7 billion as an operating cash for JLR

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Actual re-financing of bridge loan

Why did TATA go for JLR?

TaMos' 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

TaMo stood to gain on several fronts from the deal - the acquisition helped the company acquire a global footprint and enter the highend premier segment of the global automobile market. After the acquisition, TaMo owns the world's cheapest car - the Nano, and luxury cars like the Jaguar and Land Rover
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Gains to TATA from the deal Cont..

1. It got two advance design studios and technology as part of the deal, which provided access to latest technology and allowed Tata to improve their core products in India 4. It helped TaMo diversify its dependence in Indian markets (which contributed to 90% of TATAs revenue). Along with it TATAs footprints in South East Asia helped JLR diversify its geographic 2. Tata got an instant recognition and credibility across globe which otherwise would have taken years dependence from US (30% of volumes) and Western Europe (55% of volumes)

3.

The cost competitive advantage as Corus was the main supplier of automotive high grade steel to JLR and other automobile industry

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in US and Europe

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Was the deal really worth it?

Morgan Stanley reported that JLRs acquisition appeared negative for TaMo, as it had increased the earnings volatility, given the difficult economic conditions in the key markets of JLR including the US and Europe TaMo had to incur a huge capital expenditure as it planned to invest another US$ 1 billion in JLR in addition to the US$ 2.3 billion it had spent on the acquisition TaMo had also incurred huge capital expenditure on the development and launch of Nano This, coupled with the downturn in the global automobile industry, was expected to impact the profitability of the company

Has the deal made JLR profitable?

( millions, unless stated)

Year Ended 31 March

2011 2010 208 194 6,527 350 5.4% 51 (101) 680 3,030 2,350 Change 16% 26% 3,344 1,152 9.8% 1,064 977 348 (1,648) (1,996) 32 241 244 9,871 1,502 15.2% 1,115 876 1,028 1,382 354

Retail Volumes (000 units) Wholesale Volumes (000 units) Revenues EBITDA EBITDA % Net income before tax Free Cash Flow Cash Debt (incl. pref, shares)

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