Tata Motors ahead in race to buy Ford's British brands

Tata Motors, a group company of India's leading tea-to-truck business conglomerate is reportedly ahead in the race to acquire ailing U.S. automaker Ford Motor Co.'s British luxury car brands Land Rover and Jaguar which was put up for sale earlier this year.

According to sources close to the development, Ford has narrowed the auction to three bidders, the other two being India's leading SUV and tractor maker Mahindra & Mahindra (M&M) which has tied up with U.S. buyout firm Apollo Management, and One Equity Partners, a private equity fund backed by U.S. investment bank JPMorgan.

The No. 2 U.S. automaker, Ford, which has struggled with declining U.S. sales and falling market share for the past few years, has been exploring the sale of the brands since June.

Merrill Lynch analyst John Murphy at the time had valued the two brands at as much as $1.5 billion combined. The brands are now expected to fetch $3 billion.

Ford sold the Aston Martin luxury sports car unit in March and would review options for its Swedish Volvo brand.

Other bidders in the fray for the British marques were Ripplewood, Terra Firma, Cerberus and TPG.

In September, the local media reported that Mahindra was pulling out of the race as it was keen only on Land Rover since it would address the need for a premium sport utility in its line-up, which includes its popular SUV Scorpio, while Jaguar would not fit as well.

Another concern for Mahindra was the continued dependence on Ford for key vehicle components, the media said, adding that the stringent new emission standards that are due in the European Union (EU) in 2012 could have scared the Indian SUV maker off.

However, earlier this month, Mahindra announced that, contrary to speculations, it was still in the fray and had tied up with buyout firm Apollo as it was interested in Land Rover's technology. It is expected that Jaguar would go to Apollo if Mahindra is successful in its bid.

Tata Motors is India's leading commercial vehicle maker and No.3 carmaker.

Italy's largest carmaker Fiat SpA said earlier in September that it was ready to provide technical support to its joint-venture partner Tata Motors, in its bid.

Ford's union leaders in U.K. has reportedly backed Tata's bid as it felt that the workforce's best interests would be served by finding a partner with an established presence and background in manufacturing.

The comments came after all three shortlisted bidders - Tata Motors, Mahindra & Mahindra and One Equity Partners met the union representatives and spoke about their plans, including possible future offshoring of jobs or other functions now based in the U.K.

The Financial Times said that Tata was committed to the two brands as a long-term investment and was keen on continuing with the current management and workforce.

A report published in the online edition of Wall Street Journal said that union representatives see Tata as the only bidder with enough money, clout and experience to manage the brands successfully.

According to analysts back home, acquisition of the luxury brands made good business sense but they wondered whether it was worth it.

Tata Motors and Mahindra already make cars and compete with some of the best global brands in India, but they have little recognition internationally, Reuters quoted Mahantesh Sabarad, auto analyst at brokerage Prabhudas Lilladher as saying.

This way, they can show they're truly global, he was quoted as saying.

These brands can be very valuable for someone who knows how to manage them, and a big problem for those who don't, said Christoph Stürmer, associate director at Global Insight Automotive.

Mohit Arora, India country manager of research firm J.D. Power Asia Pacific feels that acquisition of the British brands might not be a good idea.

Just because something's available, that doesn't mean you have to go out and buy it, Reuters quoted Arora as saying.

How you integrate something afterwards, and how much freedom you have to do it will be key, Arora said.

Both companies have a lot on their plates and it seems like they could be taking on too much with this, Reuters quoted Ashvin Chotai, director for Asian Automotive Research at Global Insight, as saying.

Private equity firm Ripplewood Holdings which was in the fray, reportedly told a Reuters Summit early in November that it did not see (Tata's) logic of combining ultra-luxury vehicles with ultra-cheap vehicles in one company, and that the brands may be worth more strategically.

Tata Motors is expected to launch its much awaited people's car priced at $2,500 or less in the market in 2008.

Tata Motors shares are down 4.7 percent since the first report of its interest in the British marques mid-July.

According to Pradeep Saxena, senior vice president of research firm TNS Automotive, shareholders ought to note that benefits will not accrue in FY08 or FY09.

The investors need to take a long-term view on this. And if they don't like the way the deal is structured, they should walk away now, Saxena said.

However, Tata remains unfazed. And, for a good reason.

According to analysts, Tata Motors could quite easily add Land Rover to its lineup of utility vehicles and SUVs while letting partner Fiat to manage Jaguar, which would be a nice addition to the Italian firm's premium Alfa Romeo and Ferrari brands.

The group has a good track record in acquisitions and Tata Motors has been successful in integrating Daewoo Commercial Vehicles (acquired in 2004), Reuters quoted Arora as saying.

And, one should not forget, parent Tata Group, with about $40 billion in assets, has plenty of cash to develop new models and hire the best talent the industry has to offer.

Ford is expected to announce the name of the preferred bidder by December-end or early next year.