International Financial Management: Cross Border Mergers and Acquisitions, Tata Motors and JLR Case Study

This article discusses the common elements in the process of cross border mergers and acquisitions, with a case study of Tata Motors and JLR. It also explains how Tata Motors serves management goals of improving the quality of life of communities, and discusses the exposure to currency risk and methods of hedging. The subject is International Financial Management and the course code is not mentioned. The article is relevant for students pursuing courses in finance, business management, and international business.

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
International Financial Management
University Name
Student Name
Authors’ Note

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Table of Contents
Solution to Section 1 (A)............................................................................................................2
Solution to Section 1 (B. i).........................................................................................................9
Solution to Section 2 (A)..........................................................................................................10
Solution to 2(B)........................................................................................................................13
References................................................................................................................................16

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Solution to Section 1 (A)
Discussion of common elements in the process of cross border merger and acquisition
Overseas acquisitions by promising market based corporations, from nations such as India are
increasingly gaining prominence in the arena of global deals of cross border mergers.
However, attaining success in such kind of deals can be considered to be a mixed bag and is
essentially a combination of excellent management together with lucky breaks, namely
desirable external environment (Titman et al., 2017).
The process of acquirement of a business concern is said to have three common components,
namely:
- Identification as well as valuation of the target
- Completion of the process of transaction of ownership change
-Management of post acquisition process
Identification: The process of identification of particularly target market paves the way to
identification of the target business enterprise. Entering a very highly developed market
delivers the widest choice of various publicly traded corporations with comparatively well-
defined markets along with publicly divulged financial as well as operational data (Deresky,
2017). The development of particularly privatisation programs in diverse emerging markets
during the latter half of the period 1990s delivered several new targets for undertaking cross
border merger.
Valuation: After completion of the process of identification, procedures of valuation of target
start. There are different techniques of valuation that are widely utilized in the arena of global
business, each with comparative merits and demerits (Brooke, 2016). Apart from the

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elementary methodologies of discounted flow of cash as well as multiples, there are varieties
of industry specific dimensions that concentrate on the most important components value in
diverse lines of business.
Settlement of transactions: After identification of target and completion of the valuation, the
procedure of settlement of the business transaction can be considered to be a very intricate
and at the same time consuming process. There are acquisition processes that flow smoothly
and can be considered to be friendly process, while some acquisitions are not completely
supported by the entire management of Target Corporation and it is regarded as hostile
takeover. Also, regulatory approvals are also necessary particularly from the management,
ownership along with various regulatory bodies (Finkler et al., 2016). Thereafter,
compensation settlement is also carried out in this stage. This refers to the last act of the cross
border merger that involves disbursements to shareholders of necessarily the target business
enterprise.
Post acquisition management: Post acquisition managing is the phase in which the
motivations for undertaking business transaction need to be realized. Effective management
is essential as there are synergies stemming from the business combination, or introduction of
capital at a cost and accessibility formerly out of the reach of target of acquisition (Cavusgil
et al., 2014).
Cross border merger with reference to the present case
Background of the case
Tata Motors, a leading Indian motor manufacturer acquired the firm Jaguar and Land Rover
(JLR) from Ford Motor Co. at a cost of USD 2.3 billion during the year 2007. The deal
comprised of purchase of manufacturing plants of JLR, two very advanced design centres

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located in UK, national sales corporations across the world in addition to licenses of various
intellectual property rights (Shapiro & Moles, 2014).
Identification of rationale of cross border merger
Management of TATA Motors intended to enter into the market segment of luxury cars as
well as Premium Sports Utility Vehicle (SUV) in order to complete the product portfolio of
the company, which hitherto was restricted to the commercial motor vehicles, low end
passenger cars and comparatively low-priced utility motor vehicle. Also, management of the
company TATA Motors hoped to gain benefit from JLR’s product pipeline, superior
manufacturing expertise, formulate capabilities and a loyal worldwide network of dealership
(Wild et al., 2014). However, the deal appeared to be a mistake. The worldwide financial
crisis adversely affected sales of different luxury vehicles throughout the world, while JLR
was haemorrhaging cash.

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Processes followed for settlement are as mentioned below:
Highlights of post merger impacts
Various initiatives for rationalisation of cost were undertaken for improvement of cash. These
initiatives are hereby mentioned below:
- Establishment of single shifts as well as down time for 3 UK based assembly plants (Hodge,
2018).
-Extension of supplier payment terms from 45 days to 60 days
-Receivables decreased by £ 133 million from particularly 38 days to around 27 days.
-Decrease in inventory by approximately £217 million between the period June 2008 and
March 2009.
12/6/2007-DeclarationfromFOrdregardingitsplantosellJLRAugust2007:IdentificationofmajorbidderssuchasTATAMotorsApolloMAaagementm,CeribrusCapitalManagementandmanyothersTATAMotorsandM&Memergedasmajorbidders($2.5billionand$1.9billion)ForddeclaredTATAMotorsasthemostpreferredbidderFordagreedtoselltoTATAMotorsat$2.3billionTheentireprocessofacquirementwascompleted.

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-Labour actions included voluntary retirement to approximately 600 employees, reduction of
agency staff, supplementary job cuts to around 300 managers and contract with Unions to
institute pay freeze and longer hours of working (Zietlow et al., 2018).
Analysis of impact of merger on financial health
Comparative analysis of movements of share price of the company TATA Motors during the
period 2008 and 2010 shows the effect of merger on the financial health of the company
(Barr, 2018). The graphs presented below shows the share price movements of the firm
during the year 2008 and 2010.
Graph: Share Price Movement

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(Source: Kansal & Chandani, 2014)
Evaluation of movements of the share price shows that cross border merger carried out
between TATA Motors and JLR, the share prices of the company decreased. In addition to
this, it can also be observed that the rights issue of the company also failed. The other
potential problems of the cross border merger include decrease in sales of the company by
approximately 35% (Brigham et al., 2016).
Advantages gained due to the cross border merger
The company TATA Motors intended to have a global influence. Management of the firm
was of the view that buying these brands at a low rate now can help in acquiring better value
later. Again, this merger also eased the process of entry of TATA Motors in the European
market. Also, dependence of the company also reduced to a large extent on the Indian
automobile market and this accounted for nearly 90% of the company’s sales. Furthermore,
sales in different emerging markets also increased with decreased dependence on different
matured markets. The company essentially gained the opportunity of spreading the business
across diverse segments of the market (Cheng et al., 2014). The new price range starting from
63 lakh to 90 lakh also helped in placing the company TATA in the correct place to compete
with the market leaders namely Mercedes, BMW and many others.

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SWOT analysis can help in understanding the impact of the cross border merger
Figure: SWOT analysis of TATA Motors and JLR merger
(Source: Lane & Milesi-Ferretti, 2017).
In conclusion, it can be said that the merger appeared to be poorly timed as demand for
premium cars collapsed owing to the financial crisis. However, the company started to
generate profits in the FY 2010 up to approximately 41% and now can be regarded as a good
example of cross border merger.

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Solution to Section 1 (B. i)
Way TATA Motors serves management goal of improving quality of life of communities
As per the sustainability report published, Tata Motors is essentially committed to developing
social capital by means of improvement of overall quality of life of individuals in the society
that the business operates in. The vision of the company Tata Motors vision for attainment of
sustainability can be said to be closely tied with the company’s commitment to build natural
capital by means of diverse various initiatives (Greve & Man Zhang, 2017).
Actions undertaken for attainment of management goals
The identified initiatives is said to be within the facilities as well as within the societies for
shielding the overall environment. With growing emphasis on causes along with effects of
change in climate and the requirement to decrease carbon emissions, Tata Motors is working
deliberately to lessen its carbon footprint. Also, vehicular emissions present a large fraction
of carbon footprint. Approximately, 70% of carbon footprint is mainly owing to vehicular
emissions (Mukherjee, 2016). Therefore there is a focus from the firm on diverse initiatives
to alleviate and lessen emissions of CO2. In essence, the Company is functioning on
formulation, designing and development of different environmentally friendly vehicles (also
referred to as EFVs) (Brueller et al., 2016). In addition to this, Tata Motors is also launching
a programme known as Hybrid city bus along with a range of different electric vehicles
founded on Indica Vista hatchback as well as mini-truck Ace. Also, the business enterprise is
also committed to switch over to particularly Bharat Stage IV regulations effective in India
on and from 1st April of the year 2010. During the same period of time, that is aftermath the
cross border merger with JLR, the business enterprise engaged in the process of constantly
analysing diverse technologies that resulted in lower emissions of CO2. It can be hereby said

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that this activities subsequently offered improved fuel economy to all their customers (Erel et
al., 2015). Therefore, endeavour of the business enterprise to make accessible technologies to
customers at the lowest price so that most benefits can be deduced. In different
manufacturing locations, the corporation has started a drive to decrease carbon footprint as
well. It is also running to expand this drive to its a range of partners present in company’s
supply chain, this includes vendors and dealers. Furthermore, the business enterprise has also
started programme of tree plantation in and around plant as well as surrounding areas to make
certain that ecological balance is maintained. The report herein states the activities
undertaken and Tata Motors’ contribution post merger with JLR in developing economic,
social as well as natural capital by means of its products and company processes (Boschma &
Hartog, 2014).
Solution to Section 2 (A)
Discussion of the exposure to currency risk:
Crosswell International is necessarily a U.S based manufacturer as well as distributor of
particularly health care products, Crosswell was approached by Material Hospitalar and
expressed interested in the process of distribution of major product of the company “Precious
Diapers” in case if acceptable scheme as regards pricing as well as payment terms can be
attained. As the invoice for the export of the goods of Crosswell is denominated in terms of
U.S dollars, the company Crosswell needs to be anxious about changes in the currency value
(Kansal & Chandani, 2014). This can be referred to as the currency risk in this case. Also
because the bank has long-established the L/C, it is said to be protected against changes
otherwise deteriorations in the capability of Material Hospitalar to disburse in the upcoming
period. Material Hospitalar will accept the goods on or before 60 days. Then it shall then

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move about the goods through the distribution system to retailers. Relying on the payment
terms between Material Hospitalar and purchasers, it can either accept cash or terms for
disbursement for the goods. As Material Hospitalar bought the goods through the 60 day time
draft along with a L/C from the specific Brazilian bank, the entire payment of $379262.40
becomes due on 90th day. It can be put to picture that the shipment as well as presentation of
specific documents was necessarily on 30 plus 60 day time schedule to the specific Brazilian
bank. Material Hospitalar is a company based on Brazil and has accede to make
disbursements in terms of US dollars that is in the foreign currency, there is currency risk
involved in the business transaction (Cavusgil et al., 2014).
Methods of hedging for averting the currency risk
Utilization of forward contract
Currency forward contracts can be considered to be an alternative for mitigation of currency
risk. In essence, a forward contract can be considered to be a contract between two different
parties to purchase or else sell a particular asset on a specified future period and at a
particular price. The agreement can necessarily be utilized for the purpose of speculation else
wise hedging. For purposes of hedging, they can enable a financier to lock in a particular rate
of exchange. In particular, no transaction in cash occurs during the time of entering a
specified agreement as the forward price as well as delivery price is essentially equal (Gitman
et al., 2015). In itself, the price of delivery is selected in a way such that value of forward
agreement remains equal. Particularly, the delivery price is selected such that value of this
contract is zero irrespective of whether a long or else a short position in the agreement. In this
case, the party that assumes a long position purchases the currency on a particular future data
for a specified rate of exchange. On the other hand, the party that assumes a short position in
the agreement sells the currency for a specific rate of exchange.

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Using the currency option
Management of the firm can utilize the currency option for mitigating the currency risk
involved in the business transaction. Essentially, currency option provides the financiers their
right but not any kind of obligation to purchase or else sell a particular currency at a specified
rate and that before a specified date. In essence, this mechanism is somewhat similar to
forward contract (Shenkar et al., 2014).
In this case, financiers are not compelled to participate in the business transaction at the time
of expiration of the currency. As such, in case if the exchange rate of the option is more
desirable than the present spot rate, the financier would then exercise the currency option and
gain benefit from the agreement (Deresky, 2017). Again, in case if the spot rate was more
desirable, then the financier would allow the option to expire valueless and undertake foreign
exchange trade in this spot market. However, this flexibility is not necessarily free and this
option can replicate pricey ways to hedge the risk of currency.
Hedging the risk with focused exchange traded funds
There are several exchange-traded funds also simply referred to as ETFs concentrate on
delivering long as well as short exposures to diverse currencies. In case if a financier
purchased a particular asset that is mainly in Europe and was dominated in currency euro,
then the daily swings in price of the U.S dollars against the euro will necessarily affect
overall return from the asset. In this case, the financier would intend to go for long in this
case. Again, by buying a fund such as ProShares Short Euro Fund, which would effectually
short the currency euro, the financier would essentially cancel out the risk of currency related
to the initial asset. In this case, of course, the financier needs to make certain to buy a specific
amount of the exchange traded fund to become certain that the long as well as short
exposures properly match (Deresky, 2017). Essentially, ETF that necessarily specialize in

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both long as well as short exposures of currency intend to match the real performance of
currencies on which they are concentrated. Nevertheless, the actual performance often
digresses owing to fund mechanics. Consequently, not all the currency risks can be
eliminated although a vast majority of risks can necessarily be eliminated (Deresky, 2017).
Therefore, the company under deliberation can consideration the option of hedging currency
risk using the ETFs.
Solution to 2(B)
Various stages and their costs influence ability of Crosswell as an exporter in being
competitive on product pricing for penetration in the Brazilian market
The manager of Crosswell responsible for export operations of the firm followed up the
initial discussion by way of putting together an approximation of costs of export and pricing.
The company Crosswell has the need to understand all the costs along with pricing
suppositions for the entire supply as well as value chain since it reaches the customers. The
manager of Crosswell is of the view that it is critical that any kind of arrangement /scheme
that Crosswell enters into, directs to a price to Brazilian customers that is both fair to
different parties engaged and at the same time competitive, provided the market niche intends
to penetrate (Kansal & Chandani, 2014).
In this case, the company Crosswell proposed to market the diaper line to the Brazilian
distributor for around R $34 for every case. This implies that that the seller that is Crosswell
consents to cover diverse costs related to making the diapers available in the Miami docks.
Essentially, loading cost of product aboard ship, of real shipping and of the related documents
is necessarily R $4.32 for every case. In this case, the running total, that is R $38.32 for every
case can be termed as the CFR that is cost and freight. Ultimately, the insurance expends
associated to the probable loss of the products while they are in transit to the destination that

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is insurance for export costs R $0.86 for every case. Thus, total CIF is enumerated to be R
$39.18 for every case or else R 97.95 Brazilian real for every case. In this case, it is supposed
that the exchange rate of specifically R$2.50 Brazilian real for every U.D dollar. Therefore,
in the end it can be said that the cost of CIF of approximately R$97.95 can be considered to
the price charged by the exporter that is Crosswell to the importer on arrival in the nation
Brazil.
However, the cost to the distributor in acquiring the diapers from the port as well as
warehouses of customs also needs to be calculated in terms of costs in reality (Kansal &
Chandani, 2014). In actual fact, the distributor would have the need to bear the costs of
storage as well as inventory costs that equal R$8.33 for every case. This necessarily brings
the price to R$107.63 for every case. In addition to this, the distributor in Brazil also adds a
specific margin for distribution services of approximately 20% , further increasing the price
as marketed to the final retailers to R$139.15 for every case. In the end, the retailer also
include expends, taxes as well as mark up to reach to the shelf price of R$245.48 for every
case. In essence, this final retail price approximation now permits both Crosswell as well as
Material Hospitalar to assess competitiveness of price of diaper in the market of Brazil, and
provides a foundation for further negotiation to be carried out between the two different
parties.
Therefore, it can be hereby said that there are various stages and costs involved in the
business transaction (Kansal & Chandani, 2014). The primary concern that both the business
enterprises hold can be considered to be the total price to the end consumers in the nation
Brazil that is equal to R$245.48 for every case or else R$0.70 for every small sized diaper.

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This price can be considered to be pretty high. There are major rival players in the Brazilian
market for high quality diapers such as Kenko do Brasil, Procter and Gamble (US) as well as
Johnson and Johnson who provide diapers at a cheaper rate. Therefore, it can be said that the
different stages and the costs involved prove to be an impediment for the company in the way
of offering a competitive price in the Brazilian market.

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