On-road price tag for Jaguar & Land Rover runs to $3 bn

The final acquisition cost of the iconic Jaguar-Land Rover (JLR) brands by Tata Motors is likely to be about 30% more than the $2.3 billion announced on Wednesday. The $2.3 billion covers just the price of the brands, assets and technology know-how. A big part of the additional cost would go for engine and component supply. A Ford Motor spokesperson confirmed that a separate contractual pact has been signed for engines and components.

A Tata Motors spokesperson too confirmed that the purchase price does not include the engine supply cost. “JLR will be acquired with all the technology know-how and IPR required for the business. This is fully built into the purchase agreement of $2.3 billion. However, the supply of engines and components will be outside the purchase agreement,” the spokesman said.

“The total cost is likely to be about $3 billion,” a person close to the development told ET. Neither Ford nor Tata Motors officials were willing to divulge details on the cost per engine or the amount the Indian company will have to fork out, saying it is “commercially confidential information”. Tata Motors, incidentally, has struck a deal with banks to raise about $3 billion for the transaction. As per the deal, Ford will still supply JLR for differing periods with powertrains, stampings and other vehicle parts.

Ford has also committed to provide engineering support, including research and development, information technology, accounting and other services. For most of these arrangements, the Tatas will have to pay Ford separately. The engine supply agreement, for instance, has been signed initially for five years. In addition, Ford Motor Credit Company will provide financing for Jaguar and Land Rover dealers and customers during a transitional period—which can vary by market—of up to 12 months.

Incidentally, the Tatas had signed 20-odd separate agreements with Ford for the JLR takeover. Of these, around 10-12 pacts that involved engine, power trains, R&D etc would entail payment by Tata Motors to Ford over the next few years. The Tata-JLR pact is a unique M&A deal in that it is rare for the buyer and seller to have these sort of agreements. Meanwhile, Ford is likely to make a ‘significant contribution’ towards JLR’s pension funds. At closing of the deal, Ford is contributing up to around $600 million to the funds.