M&M pulls out of race for Jaguar, Rover
According to executives in the auto = industry and in investment banking circles, Tata Motors remains strongly com= mitted to the deal and is expected to be among the three major contenders vy= ing for the prize. M&M’s exit from the race reduces the possibility of a= fierce bidding war that could well push up the final price well beyond the = fair value.
Two US buyout funds, TPG and Ripplewood, are also said t= o be in the race. The official spokesperson from Tata Motors declined to com= ment on the status of their bid. Ford is pushing for final bids for the two = companies by mid-October and to eventually decide the winner by the end of t= he year. Initial reports had placed the price of the deal at around $1-1.5 billion.
Industry sources say M&M’s entire top-level automotive= team, including auto division president Pawan Goenka, visited the Jaguar an= d Land Rover factories in Birmingham and British Midlands. The M&M team = was also part of the ongoing management discussions which are part of the fe= asibility study for the bid.
M&M’s decision to pull out was prim= arily driven by two concerns. The first, say investment banking executives, = is the fact that both companies could remain dependent on Ford for the suppl= y of powertrains even after the deal. “There’s huge uncertainty surrounding = the supply of powertrain and the dependence on Ford for an unpredictable len= gth of time was a big big concern,” says an industry executive.
The = second reason was the emission regulations (CO2) that are due in the Europea= n Union in 2012. The EU is readying for the same kind of corporate average s= ystem that the US is moving towards. The acceptable average limit is likely to be around 130 gm per km of CO2. However, companies with no small and fue= l-efficient cars in their stable will find it tough to meet those regulation= s.
The same executive says that currently southern European carmaker= s like Fiat, Renault and others are locked in a lobbying battle with north E= uropean luxe brands like Porsche. If the regulations go through, the gas-guz= zling luxe brands will be in trouble. “With no small car in its stable, both= Jaguar and Land Rover will find it difficult to match the new norms,” says = an industry executive.
“Currently, their management are banking on t= he EU not going in for the new norms. But if it does, the only way these bra= nds will survive is as part of a larger stable of products in a bigger OEM c= ompany.” Industry executives also say the management of both companies are i= nterested in retaining their independence post the buyout. This would make a= private equity player more palatable to them than a original equipment manufacturer with its own take on both operations and marketing.
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