Will Tata Motors Deal Show Ford The 'Way Forward'?

Ford Motor Company’s (F) "Way Forward" plan was undertaken to restore profitability of the North American automotive business. Its new products, profitable financial services business, and cost reduction efforts are some of the positive factors affecting the company. However, an anticipated difficult operating environment is our main concern. The ongoing negotiation with the labor union, if successful, will be a sigh of relief for the company.

On March 26, 2008, Ford Motor Company entered into a definitive agreement to sell its Jaguar and Land Rover operations to Tata Motors Limited (TTM) for $2.3 billion, payable on completion of the transaction. The sale is expected to close by the end of the first quarter of 2008 and is subject to customary closing conditions, including receipt of applicable regulatory approvals.

At closing, Ford will contribute approximately US $600 million to the Jaguar and Land Rover pension plans. This removes the underperforming models from the company’s product line and helps it to focus on integrating the Ford brand globally.

The proceeds of the sale will further bolster Ford's liquidity and focus on its core automotive operations. It will also continue to supply components and technology, and provide financing, through its credit arm, to dealers and customers for up to a year to see through the transfer of ownership.

Although the company’s new product launches, cost-cutting efforts, and recent appointment of new a CEO make us optimistic, its continued market share losses, lowered credit ratings, waning SUV sales, and a tougher operating environment concern us. We set our six-month target price at $6.50 as we believe the stock will trade in the same range and recommend a Hold rating on the stock.

Comments

[Glenn Mercer:]

If I were Tata... I'd keep Land Rover (profitable and brings AWD technology complementary to Tata's, and is a "rugged" brand more in keeping with Tata's expansion in emerging markets) and sell Jaguar to Middle Eastern funds ASAP. Jaguar is losing money and brings Tata little AND I am sure there is a "package deal discount" in here: Ford's desire to sell the two together I am sure depressed the price. And while I am sure few people want to own ALL of Jaguar, I bet there are many who would like to take a flier on 20%. Jaguar thus sold off might recoup a lot of the cost of buying LR. Of course, all this may be blocked by covenants in the Ford sale agreement, but I look to the Aston Martin story for inspiration here.

2008 Mar 31 10:36 AM

[markdauvid:]

if ford is so hot to remove foregn involvement than why get involved in a new one. they have promised to invest 1 billion dollars in this new venture. so there goes the jaguar-land rover money.

2008 Apr 01 06:45 PM