Tata Motors has revealed its financial strategy to fund the significant €3.8 billion (approximately Rs 38,000 crore) acquisition of Iveco’s truck and bus business, planning a mix of equity, internal cash, and asset monetization to repay the initial loan.
Funding a Major Acquisition
This massive deal, Tata Motors’ largest since acquiring Jaguar Land Rover in 2008, will initially be financed through a €3.8 billion bridge loan provided by Morgan Stanley and MUFG. The acquisition notably excludes Iveco’s defense operations.
Tata Motors aims to clear this debt over a four-year period. Their repayment plan involves leveraging internal cash flows, a potential €1 billion equity raise – possibly through a rights issue or Qualified Institutional Placement (QIP) – and monetizing their stake in Tata Capital.
PB Balaji, CFO of Tata Motors, stated that the company plans to refinance the bridge loan with a blend of long-term debt and equity within 12 to 18 months after the deal’s closure.
Strategic Synergies and Market Expansion
The acquisition is expected to boost Tata Motors’ earnings starting from the second year, driven by anticipated cost efficiencies and the attractive acquisition multiple.
Girish Wagh, Executive Director of Tata Motors, highlighted how the product portfolios of both companies are highly complementary in terms of pricing and capabilities. He noted that Iveco brings advanced technology in areas like powertrain electrification, hydrogen, and advanced driver-assistance systems (ADAS).
Wagh believes that combining Iveco’s technological strengths with Tata Motors’ expertise in frugal engineering and “design-to-value” will create significant competitive advantages.
New Markets and Global Reach
The deal also opens doors for potential revenue synergies. Tata Motors could introduce Iveco products in India, while Tata vehicles might be launched in markets where Iveco already has a strong presence, such as Latin America.
Importantly, the Iveco brand, its operations, and distribution channels are expected to continue functioning independently post-acquisition. This strategy allows Tata Motors to access a well-established sales and after-sales network, particularly in Europe and Latin America, which would otherwise take years to build.
The acquisition also grants Tata Motors access to robust retail financing capabilities in several of these key international markets. Iveco currently employs over 32,000 people globally.
- Tata Motors plans to acquire Iveco’s truck and bus business for €3.8 billion.
- Funding will combine an initial bridge loan, internal cash, equity raise, and asset monetization.
- The debt is targeted for repayment over four years.
- The deal promises strong synergies in technology and global market access.
This strategic move is set to significantly expand Tata Motors’ global footprint and technological capabilities in the commercial vehicle sector.
