India’s Tata Motors bets big on Europe with $4.36bn Iveco purchase
Tata Motors bets big
In a major play to open up the European market, Tata Motors is acquiring the commercial vehicles business of Italy’s Industrial Vehicles corporation, popularly known as Iveco.
The all-cash deal will cost the Indian automaker a whopping $4.36bn, significantly higher than the $2.3bn it paid in 2008 for its last big acquisition, Jaguar Land Rover. Tata Motors is using a bridge loan of $4.5bn, underwritten by Morgan Stanley and Mitsubishi UFG, and then plans to raise about $1.4bn in equity to repay part of it. The deal is conditional on Iveco’s separation of its defence business, which it is selling to Italian group Leonardo.
The massive amount of debt that Tata Motors is taking on has investors worried, and the stock has shed 6 per cent since the deal was announced. In a call with analysts, senior executives attempted to allay these fears, describing it as a meaningful, large acquisition in which both companies have agreed to build a business of “size and scale”. Tata estimates the deal will bring in more than $25bn in revenue from Europe, India and the Americas.
Tata is making a bold move. While the commercial vehicle segment contributes 18 per cent of its revenues, sales volumes have been decreasing. For the immediate future, analysts worry that a slowdown in Europe and the US and Trump’s tariffs will hit revenues. Much as we might be tempted to analyse the deal based on the current business environment, it will take at least three or more years for the real impact of the deal to be clear.
Because it is hoping to raise equity to pay for some of the debt, the immediate challenge for Tata Motors will be to convince the market that the deal really is good for the company. But the company has had . . . let’s call it, a “troubled history”, with its past acquisitions. JLR, for example, cannot really be described as a major win, with the brand dogged by a drop in global demand and continued pressure on its margins. In the recent call, Tata executives said they had learned from their past experience and that this opportunity was too good to pass up. The big question is whether the company has bitten off more than it can chew with Iveco.