Investors cool on Tata, Mahindra bids for Ford brands

By Rina Chandran - Analysis

MUMBAI (Reuters) - Buying Ford Motor Co's (F.N) premium Jaguar and Land Rover brands would catapult Tata Motors (TAMO.BO) or Mahindra & Mahindra (MAHM.BO) onto the global stage, but doubts either Indian automaker can successfully pull off such a deal are weighing on their share prices.

Analysts say even if either firm, known for their sturdy but rather staid trucks and utility vehicles, wins the race for the luxury brands, the acquisition may prove too complex given their other ambitious expansion plans.

"Just because something's available, that doesn't mean you have to go out and buy it," said Mohit Arora, managing director for India at research firm J.D. Power Asia-Pacific.

"How you integrate something afterwards, and how much freedom you have to do it will be key," he said.

Ford has been exploring a sale of Jaguar and Land Rover, which Merrill Lynch values at up to $1.5 billion, since June and said it expects to close a deal by early next year at the latest.

Sources have told Reuters the three groups left on a shortlist are Mahindra and buyout firm partner Apollo, Tata Motors and JP Morgan-backed One Equity Partners (JPM.N).

"Tata Motors and Mahindra already make cars and compete with some of the best global brands in India, but they have little recognition internationally," said Mahantesh Sabarad, auto analyst at brokerage Prabhudas Lilladher.

"This way, they can show they're truly global," he said.

TAKING ON TOO MUCH

But investors have given the plan a thumbs down: Tata Motors shares are down 4.7 percent since the first report of its interest in mid-July, while Mahindra shares have lost 9.2 percent in a record-setting share market .BSESN that gained 26 percent over the same period.

Analysts say there are concerns ranging from funding the acquisition in tight credit markets, to diverting resources from their own ambitious plans in the fast-growing Indian market and beyond, to possible conditions attached to a sale.

Private equity firm Ripplewood Holdings, which was among the initial bidders, told a Reuters Summit at the weekend it did not see the logic of combining ultra-luxury vehicles with ultra-cheap vehicles in one company, and that the brands may be worth more "strategically". ID:nN18402601.

Tata Motors (TTM.N), India's top truck and bus maker and No. 3 car maker, is scheduled to launch in 2008 a car priced at $2,500, or less than half the price of the cheapest car currently on the market.

Tata Group Chairman Ratan Tata, who led the company's foray into cars with the indigenously made Indica hatchback in 1999, has said they were interested in the Ford luxury brands to reduce dependence on the Indian market and for a more global presence.

An official at Mahindra, which controls half the market for utility vehicles and makes cars and tractors, told a newspaper Tuesday they were interested in Land Rover's technology.