Tata Motors acquisition of Daewoo Commercial Vehicle Company

Case Summary
The Tata Daewoo Commercial Vehicle Company (TDCV) is South Korea's second largest manufacturer of medium and heavy-duty trucks. Daewoo Commercial Vehicle Company (DCVC), part of the Daewoo Group was acquired In February 2004 for USD 102mn by Tata Motors. The trucking industry saw a wave of consolidation in 1990s and by 2004 the DaimlerChrysler Group was the largest truck manufacturer in the world with annual sales of 420,000 units. Truck manufacturing required more customization and was thus regarded as a local or regional industry rather than a global industry. Most developed countries had a stable demand for trucks in 1990s with growth to be driven by increase in demand in emerging countries especially in Asia. Tata Motors (TM) was established in 1945 as an engineering and locomotive firm. By 2003 TM was the largest manufacturer of medium and heavy commercial vehicles in India with a market share of 60% and offered more than 100 models of light and medium trucks, buses, SPV etc. The Indian truck market had been growing at 30% after 2002 but was expected to slow down to 10% in the medium term. It was perceived TM had reliable but not technologically advanced trucks and thus TM launched a World Truck program which aimed to introduce a full range of trucks by 2008. Established in 1982 as the Daewoo Motor Company, the business was spun off as Daewoo Commercial Vehicle Company in 2002. DCVC produced more than 90 truck models in the heavy commercial vehicle range (210 400 hp engine) and had the second largest market share in heavy trucks in Korea by 2003. TM believed that acquiring DCVC would allow TM to save up to 2 years and considerable costs in the development of its World Truck program. It would also act as a hedge against the cyclical nature of the truck business and provide access to technology and complementary product range. DCVC is hesitant to sell to a foreign company. The TM team spends a lot of time and effort in educating DCVC about TM and accommodating some of the trade union demands. TM is successful in creating a positive perception and becomes the preferred bidder for DCVC. It manages to acquire DCVC for USD 102mn much below its previously anticipated price of USD 203mn.

Theory required for solving problem

Table: Alternative market-entry strategies

Successful cross border acquirers: 1. 2. 3. 4. Buy targets in core business Seek strong local performers Create multiple acquisitions, not one-off deals Significant skill transfer to and fro from the acquired company

Programs in core business have high success rate- Number of companies Source: Succeeding at cross border M&A, Joel Bleeke at el.

Deal rationale (Strategic fit)

Opportunity to hedge cyclicality of domestic CV business Enhance product portfolio and expand product range Managing operations in developed quality sensitive markets Access to technology and complementary product range Access new markets Korea/ China Allow TM to save up to 2 years and considerable costs in the developme nt of its World Truck program reduce development time and mitigate financial and marketing risks. DCVC South Korea 43% Heavy Trucks (15 to 45 tons) 210-420 hp Doosan Infracore Company, Cummins Sourced externally TM India 10% Light and medium trucks (2 to 40 tons) 50-210 hp In-house through JV with Cummins Internal Manufacture

Major markets % exported Product range Engine types Engine source Major Drive Train components

Problem identification
DCVC preferred to be acquired by a European firm with technological and financial resources that DCVC required. The DCVC union demanded no layoffs for the first 3 years after acquisition.

Problem mitigation
1. Structured program to educate DCVC about India and the Tata Group- TM translated all its bid and company material into Korean made available to the company within 72 hours. Presentations to management, trade unions, government and various ministries and bodies were made in Korean. TMs communication was managed taking into consideration the more hierarchical structure of DCVC and it was ensured that senior managers were not undermined by direct communication with subordinates. TMs communication was focused on 2 key messages: a. Strong global connectivity: Partnerships with leading truck and automotive companies provided access to technology. 6th largest commercial vehicle manufacturer in the world and manufactured key components in house. b. Strong corporate governance, good reputation for ethical management along with long term success despite being a family owned business. Korea has a strong work ethic and the TM made efforts to demonstrate its own strong culture and work ethic. TM agreed to the union demand after careful evaluation and knowledge gained from visiting foreign buyers of other Korean firms.

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Findings
The M&A was hailed as a great success and a model for future acquisitions. The combination of TM &DCVC created the fifth largest manufacturer of medium and heavy trucks in the world. A number of events took place post acquisition: In 2005, DCVC launched a new range of medium trucks, its first major product in a decade and the first time the firm offered products outside the heavy truck segment In 2004 exports doubled and in 2005 accounted for 66% of total heavy truck exports from Korea to primarily South Africa and Middle East. No sign of union unrest and DCVCs transfer to new owner had been almost p ainless TM launched a new assembly facility in India for DCVCs Novus Truck Financial performance was strong and improved over the years as can be seen below. Exports saw a growth of CAGR of ~86% from FY05-FY07.

Source: Tata motors, http://www.dnb.co.in/FESConfTool/Uploads/Presentations/85/Mr.P.P.Kadle.pdf