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Tata Motors' luxury ambition puzzles some

The Indian firm may bid for Jaguar and Land Rover. Critics say that doesn't make sense.

September 24, 2007|Rajesh Mahapatra | The Associated Press

new delhi -- For this former British colony, an Indian takeover of Jaguar and Land Rover would be a boost to local pride and a sign of India's economic rise.

But many investors and automotive industry analysts question whether a bid by India's Tata Motors -- maker of workhorse trucks and low-end mass-market cars -- for the two luxury brands would make much business sense.

Chairman Ratan Tata confirmed last month that he was interested in entering the competition for the iconic Britain-based automakers, which have been put on the auction block by financially troubled Ford Motor Co. Several U.S. private equity firms are also expected to submit bids.

The graying, distinguished Tata has said such an acquisition would help bring global visibility to his group -- a sprawling conglomerate that makes products including automobiles, steel and software, and a name that until recently was little known outside India.

Tata Steel made a splash in January when it won a bidding war to buy Anglo-Dutch steel maker Corus Group for $12.1 billion. That deal, India's biggest foreign acquisition, highlights the country's recent outward expansion into the global economy.

But although the Corus acquisition was widely seen as a good match -- and since appears to be paying off -- experts don't see similar synergies in a Tata Motors takeover of Jaguar and Land Rover.

Long a giant in truck and bus manufacturing, Tata has only about a decade of experience selling cars -- and most recently, has grabbed headlines with its plan to make an ultra-cheap car costing just 100,000 rupees, equivalent to $2,400. The company has been successful selling into the burgeoning Indian market, which is dominated by hatchbacks and subcompacts.

Jaguar and Land Rover are luxury brands that cater to a small market and have a limited distribution network. What Tata needs more, if it wants to reduce its dependence on Indian buyers, is a large overseas sales network that targets the mass market, experts say.

"It makes no sense at all," said S. Ramnath, an auto analyst at SSK Securities in Mumbai (formerly Bombay). "It's passion that is behind this move."

Morgan Stanley analyst Balaji Jayaraman called such an acquisition "value-destructive given the lack of synergies and the high-cost operations involved."

Still, people tracking the matter say Tata Motors has a good chance of bagging the Jaguar and Land Rover brands.

Morton Pierce, head of mergers at New York law firm Dewey Ballantine, thinks Tata has an edge over U.S. private equity firms because the firms might find it difficult to raise funds for such acquisitions in the midst of a credit shortage sparked by trouble in the U.S. mortgage market.

An executive with a European consulting firm with close ties to Jaguar said Tata had a high probability of winning if it bid. The executive didn't want to be identified because of his association with the acquisition target.

Ford, which lost $12.7 billion last year, has been looking to sell Jaguar and Land Rover, which have been hit by unfavorable exchange rates and high production costs in Britain. The Dearborn, Mich.-based automaker doesn't break out its earnings for those units, but it has said it never made money from Jaguar since buying it in 1989. Land Rover is performing better thanks to new models introduced last year.

Ford has not said how much it wants for the combined units, but analysts have estimated their worth at $1.5 billion.

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