TaMo to Finance Iveco Partnership Through Loans, Equity, and Stake Sale
Tata Motors has announced plans to raise 1 billion euros in equity and monetize its stake in Tata Capital, which is preparing for an initial public offering (IPO). This financial maneuver aims to support the acquisition of Iveco, valued at 3.8 billion euros (approximately Rs 38,060 crore). To facilitate this deal, Tata Motors will initially rely on a bridge loan from Morgan Stanley and Japan’s MUFG, with plans to refinance the loan through equity and long-term debt once the transaction is finalized.
Funding Strategy and Financial Details
Tata Motors’ Chief Financial Officer, PB Balaji, outlined the company’s funding strategy, indicating that the bridge loan will be drawn down in April. The company expects to take about 12 months to secure the necessary equity and long-term debt to replace the bridge loan. The refinancing plan includes a potential rights issue and the monetization of Tata Capital, which is valued between $18-20 billion. Balaji emphasized that both Tata Motors and Iveco are currently cash flow positive, meaning their operational revenues will contribute to repaying the loan. This acquisition marks a significant shift for Tata Motors, as it will be the first major acquisition without financial guarantees from its promoter, Tata Sons, due to Reserve Bank of India restrictions on unregistered core investment companies.
Acquisition Terms and Conditions
Tata Motors has proposed an offer of 14.1 euros per share for Iveco. Should Iveco receive a competing cash offer exceeding 9.5% of Tata Motors’ bid, the Indian company retains the right to match it. If Tata Motors cannot match a superior offer, the deal may be terminated, with Iveco liable to pay a breakup fee of 38 million euros (around Rs 381 crore) to Tata Motors. Additionally, if Iveco’s board alters its endorsement of Tata Motors’ proposal following a significant event, the breakup fee will still apply. To ensure compliance with non-financial covenants regarding employee treatment and governance, two independent board members from Iveco will oversee adherence to these agreements for two years post-acquisition.
Strategic Goals and Market Position
Tata Motors aims to acquire at least 80% of Iveco’s shares to facilitate its delisting from the Euronext Milan stock exchange. The company believes that operating Iveco as a wholly-owned subsidiary will enhance its long-term success. This acquisition is expected to elevate Tata Motors to the fourth position globally in truck sales, following industry leaders Daimler, CNHTC, and Traton. In 2024, Iveco is projected to generate revenues of 14.1 billion euros, with an operating profit of 891 million euros. The truck segment is the primary revenue driver for Iveco, followed by its powertrain and bus divisions.
Future Outlook
As Tata Motors moves forward with this acquisition, the company is positioning itself for significant growth in the commercial vehicle sector. The integration of Iveco’s operations is anticipated to enhance Tata Motors’ market presence and operational capabilities. With a workforce of 32,000 employees across 19 industrial and 30 research and development sites globally, Iveco’s resources will be instrumental in driving Tata Motors’ strategic objectives. The successful completion of this acquisition could reshape the competitive landscape of the global trucking industry, providing Tata Motors with a robust platform for future expansion.
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