According to executives in the auto industry and in investment banking circles, Tata Motors remains strongly committed to the deal and is expected to be among the three major contenders vying for the prize. M&M’s exit from the race reduces the possibility of a fierce bidding war that could well push up the final price well beyond the fair value.
M&M’s decision to pull out was primarily driven by two concerns. The first, say investment banking executives, is the fact that both companies could remain dependent on Ford for the supply of powertrains even after the deal. “There’s huge uncertainty surrounding the supply of powertrain and the dependence on Ford for an unpredictable length of time was a big big concern,” says an industry executive.
The second reason was the emission regulations (CO2) that are due in the European Union in 2012. The EU is readying for the same kind of corporate average system that the US is moving towards. The acceptable average limit is likely to be around 130 gm per km of CO2. However, companies with no small and fuel-efficient cars in their stable will find it tough to meet those regulations.
With no small car in its stable, both Jaguar and Land Rover will find it difficult to match the new norms,” says an industry executive.
“Currently, their management are banking on the EU not going in for the new norms. But if it does, the only way these brands will survive is as part of a larger stable of products in a bigger OEM company.” Industry executives also say the management of both companies are interested in retaining their independence post the buyout. This would make a private equity player more palatable to them than a original equipment manufacturer with its own take on both operations and marketing.
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Smart move from Mahindra who have always know to be very shrewd in their decisions,wonder what Tata think of this though.
