UPDATE: Ford To Sell Jaguar, Land Rover To Tata For $2.3B

Last Update: 3/26/2008 8:24:26 AM

DOW JONES NEWSWIRES

Ford Motor Co. (F) said it agreed to sell its Jaguar and Land Rover luxury brands
to India’s Tata Motors Ltd. (TTM) for about $2.3 billion, as it moves to remove a
major distraction to its ongoing restructuring.

“Jaguar and Land Rover are terrific brands,” said Ford President and Chief
Executive Alan Mulally. “We are confident that they are leaving our fold with the
products, plan and team to continue to thrive under Tata’s stewardship.”

Under the agreement, Ford will continue to supply Jaguar Land Rover with
powertrains, stampings and other vehicle components, plus various technologies,
such as environmental and platform technologies. Ford also has committed to
provide engineering support, including research and development, plus information
technology, accounting and other services, the company said.

People close to the negotiations had said that Ford was expected to continue to
supply engines built in U.K. factories to Jaguar and Land Rover for the next five
to seven years. Ford expects to make an annual profit between $70 million and
$100 million on those sales to Tata, one of these people said ahead of the
announcement.

Ford Motor Credit Co. also will provide financing for Jaguar and Land Rover
dealers and customers for as long 12 months. In addition, Ford will put nearly
$600 million of the proceeds into the pensions at Jaguar and Land Rover.

Current Jaguar and Land Rover Chief Executive Geoff Polites was expected to
continue running the businesses once they were sold to Tata, these people said.
The press release didn’t address his future with the auto maker.

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

The deal, expected to be made final with regulators sometime during the second
quarter, capped off months of discussions between the parties and much
speculation among investors about the fate of the brands in the sale. The process
began last June when the U.S. auto maker hired Goldman Sachs Group Inc. (GS) and
Morgan Stanley (MS) to run an auction of the two units, part of its Premier
Automotive Group.

Ford acquired Jaguar for $2.5 billion in 1989 and Land Rover for $2.75 billion in
2000. The sale - for much less than Ford originally paid for the brands - comes
as Mulally focuses on the company’s core Ford brand, which is a profitable
business around the world but which is mired in deep red ink in its core North
American market. Ford, of Dearborn, Mich., rang up more than $15 billion in
losses over the past two years.

Land Rover has performed well of late, but Jaguar has suffered enormous sales
declines in Ford’s core North American market. The two brands are part of Ford’s
Premier Automotive Group, which also includes Swedish luxury brand Volvo, another
struggling unit.

Jaguar Unprofitable For Years

Ford doesn’t break out financial results for the luxury group’s individual
brands, but the auto maker has acknowledged that Jaguar has been unprofitable for
years. Ford recently sold its Aston Martin business for $925 million but has said
it intends to keep Volvo, improve it and reposition it as a leading luxury brand.

Ford hired Goldman Sachs Group and Morgan Stanley last June to run an auction of
the two units.

In recent pre-market dealings, Ford shares were at $6.05, up less than 1% from
Tuesday’s close.

In addition to working to continue the supply of engines and other components
from Ford’s U.K. factories, both sides also worked to secure support from the
unionized work forces at Jaguar and Land Rover. Unite, the U.K.’s largest trade
union, which represents 16,000 Jaguar and Land Rover workers, had expressed
concerns over job security as a sale neared.

Wednesday, Unite joint general secretary Tony Woodley said he was “pleased” Tata
was buying the brands and safeguarding jobs in the U.K. but said it was “a big
disappointment” Ford wasn’t keeping a stake.

“We would have much preferred Ford to keep the companies in the family, so to
speak, especially with Land Rover being so profitable,” Woodley said in a brief
statement. “But with the commitments Tata have given to the future of Jaguar Land
Rover and the long-term supply agreements for components, especially engines from
Bridgend and Dagenham (Ford sites in the U.K.), we’re obviously pleased they are
in the game.”

Tata Motors Managing Director Ravi 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. Last week,
a person familiar with the matter said the union remains “as satisfied as it can
be” that there would be no reduction in staffing levels.

Tata, a unit of India’s Tata Group and India’s second-largest passenger-vehicle
maker and the biggest truck maker by sales, signed a one-year $3 billion bridging
loan with Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) to help in its
purchase of the luxury brands, a person familiar with the deal said.

For Tata, which recently unveiled the $2,500 Nano, the deal gives the company an
opportunity to expand its reach globally in the auto sector and stay toe-to-toe
with Indian rival Mahindra & Mahindra Ltd. (500520.BY). Mahindra already has
plans to enter the U.S market in 2009 and had also vied for Ford’s luxury brands.

“Tata doesn’t have the vehicles that Mahindra has,” said Kimberly Rodriguez, a
partner in the restructuring and turnaround practice at Grant Thornton LLP in
Southfield, Mich. “They need to get out ahead of Mahindra. They’re not going to
do it with their $2,500 car.”

To win the deal, Tata beat off trade and private equity rival bidders including
One Equity Partners, a unit of J.P. Morgan, whose executives include former Ford
Chief Executive Jacques Nasser, and Mahindra & Mahindra.

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