India's Tata Motors to raise 1 billion euros in equity for Iveco deal
Tata (TAMO.NS), opens new tab and Iveco (IVG.MI), opens new tab announced an all-cash deal on Wednesday. It will be the biggest ever transaction for the Mumbai-based automaker, which made its last major acquisition in 2008 when it bought Jaguar Land Rover from Ford Motor (F.N), opens new tab for $2.3 billion.
Tata Motors finance chief PB Balaji said Morgan Stanley (MS.N), opens new tab and MUFG will underwrite the $4.5 billion bridge loan to secure the deal. The company, he said, will then look at a capital raise of around 1 billion euros along with some term debt "sometime in the next 18 months" to pay down the bridge loan.
"Tata Motors has never been stronger in terms of its financial position to take on such a transaction," Balaji said during a media briefing, adding that both Tata and Iveco's businesses are cash-generating.
Shares of Tata Motors fell as much as 2.4% on Thursday morning, reflecting concerns over the amount of debt the company will need to take on for the deal. But they recouped some losses, ending the day 0.4% lower in a weak Mumbai market.
Tata Motors' trucks and bus business recorded its highest ever profit of over $750 million in the last fiscal year that ended on March 31. And its consolidated automotive business, which includes Jaguar Land Rover and passenger cars, is debt-free.
The deal will immediately triple Tata's commercial vehicles revenue, giving it access to Iveco's markets including Europe - where the Italian group competes with Volvo (VOLVb.ST), opens new tab and Daimler (DTGGe.DE), opens new tab - as well as Latin America.
It will also allow Tata to launch Iveco's products in India and elsewhere.
"We can look at some of Iveco's tippers, vans and buses coming into the Indian market. We can also look at the Latin American market, where some of our trucks or small commercial vehicles can go," Tata Executive Director Girish Wagh said.
Iveco and Tata's commercial vehicles business will have combined revenues of about 22 billion euros, with half coming from Europe, 35% from India and the remainder from the Americas.
Tata has already identified synergies to boost revenues and cut costs, Wagh said, adding there is some overlap in research and development in the areas of powertrain technologies, electrification and connectivity, which can be combined.
Wagh added that Tata can also leverage India's "frugal engineering skills" and bring down material costs at Iveco's European factories.
Iveco CEO Olof Persson, meanwhile, told an analyst call on Thursday that Tata had committed to maintaining the "industrial footprint and employee communities". Iveco employs around 36,000 people, including 14,000 in Italy.
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