Ford and Tata finalise $2.3bn deal

Ford and Tata finalise $2.3bn deal

By John Reed in London

Published: March 26 2008 12:50 | Last updated: March 26 2008 13:05

Tata Motors will pay Ford Motor about $2.3bn for Jaguar and Land Rover and Ford will contribute up to about $600m (£300m) to the two brands’ pension plans under terms of a sale agreement announced on Wednesday.

Ford will also continue to supply the two brands with engines and transmissions, stampings and other components for differing periods, and its credit arm will provide financing for their dealers during a transitional period of up to two months.

Ford made the announcement, as expected, at midday UK time after briefing Jaguar and Land Rover employees on details of the transaction. The sale is subject to regulatory approvals and is expected to close by midyear.

The deal is small by the standards of the global automotive industry – or of other big mergers and acquisitions in industry and finance – but has been closely followed as a new high-water mark for an Asian company in acquiring two world-renowned automaking marques.

Ratan Tata, chairman of the industrial group that owns the Indian carmaker, said in a prepared statement that “we have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact.”

As previously reported, Ford is selling 100 per cent of its ownership of the two carmakers, which leaves Volvo cars as the sole premium overseas brand it still owns as chief executive Alan Mulally focuses on turning around the US carmaker’s core North American volume-car business. Ford also owns a 34 per cent stake of Japan’s Mazda.

Earlier on Wednesday, Tony Woodley, joint general secretary of Unite, said that the union would have preferred that Ford keep Jaguar and Land Rover “in the family,” but that among potential bidders “Tata was the best option.”

Unions had worried that a private equity buyer might close plants or sack staff, or sell off some of the two carmakers’ assets.

Ford’s decision not to retain a stake in the two carmakers – as it did when it sold Aston Martin to a Kuwaiti-led consortium last year – was “a big disappointment,” Mr Woodley said.

Tata won union backing for the deal by broadly endorsing the two carmakers’ current management and five-year business plans. Tata and Ford did not “anticipate any significant changes to Jaguar Land Rover employees’ terms of employment on completion.”

Land Rover is profitable and reporting record sales, but Jaguar’s sales have been declining and it is losing money. Combined, the two brands are profitable.

Tata’s share price dropped in early trading in India on Wednesday. Premium vehicles are the most profitable segment in the cost-challenged car industry, but analysts say that the Indian company will need to work quickly to shore up new investments in lower-emission vehicles and engines. Italy’s Fiat has expressed interest in working with Jaguar and Land Rover after Tata bought them.

Ford said it had committed to provide the two brands with engineering support, including research and development, information technology, accounting, and other services.

Mr Mulally said of Jaguar and Land Rover: “We are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata’s stewardship.”