Tata and Ford Reach Deal
For Land Rover, Jaguar

In a widely expected deal, Ford Motor Co. agreed to sell its Jaguar and Land Rover luxury brands to Tata Motors Ltd. of India for about $2.3 billion as the U.S. auto maker moves to rid itself of a major distraction to its continuing restructuring.

Under the agreement, Ford will continue to supply Jaguar and Land Rover with powertrains, stampings and other vehicle components along with various environmental and platform technologies, the companies said.

Those supply agreements will last for the next three years, Tata Motors Managing Director Ravi Kant told a teleconference Wednesday. People familiar with the negotiations have said the supply arrangement could continue for two to four years beyond that.

Ford also will provide Tata Motors, a subsidiary of conglomerate Tata Group, with other services, such as research and development and accounting. In addition, Ford will provide financing for dealers from its lending arm, Ford Motor Credit, for as much as a year.

Ford expects the deal to close sometime in the second quarter, when it will then pump $600 million of the proceeds into Jaguar and Land Rover's pension funds.

The deal, negotiated over the past several months, marks another turn in Ford Chief Executive Alan Mulally's continuing effort to pare the auto maker's portfolio and refocus on globally integrating its core Ford business, which is mired in red ink in North America but profitable elsewhere in the world. Mr. Mulally is slashing production and cutting tens of thousands of jobs amid more than $15 billion in losses over the past two years.

CARCAST

 

WSJ's David Patton explains why Ford's deal to sell Jaguar and Land Rover to India's Tata is probably a good deal for all parties involved. Plus, why ultra-high end motorcycles are actually a bargain and how Mercedes is trying to reach a younger audience through Web based media.

Underscoring Mr. Mulally's determination to unload assets, the final selling price for Jaguar and Land Rover was well below what the auto maker originally paid for either business individually. Ford acquired Jaguar for $2.5 billion in 1989 and Land Rover for $2.75 billion in 2000. While Land Rover has performed well of late, Jaguar has suffered enormous sales declines in the U.S. in recent years. Ford sold its Aston Martin business last year and retained a small stake, but it unloaded its entire interest in Jaguar and Land Rover to Tata.

"Jaguar and Land Rover are terrific brands," Mr. Mulally said in a statement. "We are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata's stewardship."

Current Jaguar and Land Rover Chief Executive Geoff Polites is expected to continue running the businesses once they are sold to Tata, people familiar with the matter said.

For Tata, the deal extends the company's global reach in the auto sector and shores up its competitive standing against Indian rival Mahindra & Mahindra Ltd., which already had plans to enter the U.S. market in 2009. Mahindra had also vied for Jaguar and Land Rover.

"We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business," said Tata Chairman Ratan Tata in a statement. "We have enormous respect for the two brands and will endeavor to preserve and build on their heritage and competitiveness, keeping their identities intact."

Getty Images

Ford is selling its Land Rover brand to Tata Motors.

As part of negotiations, Ford and Tata sought to assuage British labor leaders -- representing about 16,000 Jaguar and Land Rover workers in the U.K. -- who had concerns about job security in the event of a sale. Tata's Mr. Kant made two visits to the U.K. to assure the union that there would be no attempt to "Indianize" the companies and that Tata would continue to receive Ford engines and other parts for some time.

Tata also signaled it would keep the luxury brands' executive suites intact. "We have had one interaction with top management, and there is a great deal of enthusiasm," Mr. Kant said in Wednesday's teleconference.

In India, the press welcomed the acquisition with pride, seeing it as one of the most dramatic examples of India's growing global economic power.

Investors and analysts however, haven't been as optimistic about the move. Tata Motors, India's largest car and truck maker by sales, should be focusing on the booming home market for its affordable cars and trucks, they say.

While, Tata is using the acquisition to boost its international profile and will be able to use Jaguar's and Land Rover's expertise in building high-quality cars and luxury brands, it will be years before the acquisition helps its bottom line, analysts say.

"Five years in the future, it may have some positive impact, but in the short term I don't see anything positive," says S. Ramnath, an analyst at SSKI-IDFC India Research, a brokerage in Mumbai. In the fiscal year ending March 31, 2009, the acquisition could slash Tata Motors' earnings by as much as 65%, depending on how the financing is arranged, he said in a report.

Shares of Tata Steel have underperformed the market since it bought Anglo-Dutch steel company Corus Group PLC last year for around $12 billion.

Tata recently secured about $3 billion in financing to aid in the acquisition of Jaguar and Land Rover.

Write to Mike Spector at mike.spector@wsj.com and Eric Bellman at eric.bellman@awsj.com

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