And you thought the sale of Bear Stearns was a bargain?
Some Friday-morning quarterbacking shows that Indian automaker Tata Motors clearly landed one of the automotive deals of the century in its acquisition of British marques Jaguar and Land Rover, earlier this week.
Right off the bat, the numbers appeared quite lopsided in Tata’s favor. Yes, the Indian maker agreed to pay $2.3 billion to Ford for the two brands, but as soon as the deal formally closes, the American maker pumps a hefty $600 million back into the Jaguar and Land Rover pension program.
Now, recall that Ford originally paid $2.5 billion for Jaguar, in 1989, and $3.3 billion for Land Rover, in 1999. Work out even a modest rate of return if the U.S. company had simply banked that cash in a money market account and you don’t need to be a math wiz to figure out who came out on the bottom of the deal.
But when you dig even deeper, the numbers look even worse – a lot worse. By our calculations, Jag and LR added up to one of the costliest chapters in Ford Motor Co.’s long history, having very likely drained away between $35 billion and $50 billion based on the best estimates gleaned from the carmaker's financial records.
Ford hasn't always broken out Jaguar's losses. However, the red ink needs be added to the ongoing capital investment in the English luxury marquee. Using even conservative industry estimates, Ford has been pumping an average $1 billion to $1.5 billion annually into Jaguar, over the last 18 years. The return? Nil.
At least Land Rover did appear to produce some nominal profits at times. But it clearly never earned back the cost of the capital investment Ford poured into the half dozen new models it has introduced since Jacque Nasser agreed to take the struggling venture off BMW’s hands. Ford's net subsidy of Land Rover also likely totaled more than $1 billion annually.
Ford did purchase some extra prestige with the two acquisitions, particularly in Great Britain and among some segments of the motoring press. But prestige and goodwill don't pay cash dividends and Ford certainly could have used the money in other ways.
Former GM chairman Roger Smith briefly entered the bidding for Jaguar back in 1989 but dropped out after helping drive up the sale price. Most observers believe Smith never had any intention of buying Jaguar; Smith said privately he believed it would become a huge burden for Ford - one that would hobble what was then GM's chief competitor for years to come. It certainly looks as if Smith, who died last December, was correct.
Thus it was no surprise that Ford's current chief executive Alan Mulally, a complete outsider, started looking for a way to dump the "English Patient" almost from the first day he arrived at Ford's Dearborn headquarters in the fall of 2006. The bill for the life support system was way too high.
So, what has Tata bought itself? That remains to be seen, though the Indian company’s management is pretty shrewd and if they can run Jaguar and Land Rover at roughly break even, they will probably consider themselves lucky. —Joseph Szczesny with TCC Team