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India’s Tata, Mahindra may bid for Jaguar, Rover

MUMBAI - India’s Tata Motors Ltd., famous for developing a cheaper car for the masses, may be making a drive for the luxury end of the market with a possible offer for Ford Motor Co.’s F.N Jaguar and Land Rover.

Tata Motors TAMO.BO TTM.N, India’s top vehicle maker, and local foe Mahindra & Mahindra Ltd. MAHM.BO are expected to launch rival bids for the two famous brands, which are expected to fetch roughly $1.5 bilion, several media reports have said.

Both declined comment on reports that they are in talks with investment banks and private equity firms to craft bids. A successful deal would catapult the winner into the ranks of global car makers and continue a spate of high-profile overseas acquisitions by Indian companies.

Ford, which is expected to post its eighth straight quarterly loss on Thursday, said last week it had contact with possible buyers and was evaluating the level of interest in the brands.

India’s CNBC-18 TV network said on Thursday that Tata was the front-runner in bidding for the two brands, but did not identify its source.

Mahindra has the advantage of familiarity. India’s top utility vehicle and tractor maker was Ford’s partner on its entry into India in 1996.

But analysts said the might of the Tata Group, which is India’s second-biggest privately owned group, gives it an edge.

“They are in a better position, given their size and the backing of the group,” said Ramnath S, an auto analyst at SSKI Securities.

“It makes better strategic sense for Tata, and (Chairman) Ratan Tata has an obvious passion for these marquee brands.”

Tata Motors is clearly keen on the UK market: it had previously partnered MG Rover to distribute its hatchback there.

Other bidders may include Cerberus Capital Management [CBS.UL], the investment group that purchased the Chrysler Group in May from DaimlerChrysler DCXGn.DE, as well as Ripplewood Holdings and One Equity Partners, media reports have said.

Global ambitions

The Tata Group is not afraid to make big-ticket buys. In January, Tata Steel TISC.BO paid $12 billion for Anglo-Dutch steel maker Corus.

Tata Tea TTTE.BO last year paid $677 million for a stake in US beverage firm Energy Brands, which it then sold to Coca-Cola KO.N. It had also bought UK’s Tetley Tea for $432 million.

If Tata joined forces with private equity firms, it would be a first for a group accustomed to making solo bids.

Outbound India M&A deals this year total $15.26 billion from 108 deals, according to data from Dealogic. That compares with $5.95 billion from 89 deals in the same period last year and $21.7 billion from 167 deals in the whole of 2006.

Both Tata Motors and Mahindra have global ambitions, with a focus on exports.

Tata Motors has a joint venture with Italy’s Fiat FIA.MI to manufacture vehicles and engines in India, besides distribution in overseas markets.

Mahindra has a venture with Renault RENA.PA to make the Logan sedan in India, and a separate alliance with Renault and Nissan Motor 7201.T to make up to 400,000 vehicles in India.

Tata Motors, the No. 3 car maker in India, is scheduled to launch a small car priced at under $2,500 next year, which has prompted others, including Renault, Toyota Motor 7203.T and Fiat to also consider a cheap car for emerging markets.

So a big acquisition would stretch Tata and Mahindra at a time when they are adding capacity and developing new products, analysts say.

“It will open the door to new markets, new distribution networks and new technologies, but at what cost?” Ramnath said.

“It would be expensive, really stretch their balance sheets.”

Another analyst, who asked not to be identified, said Tata and Mahindra, known for making sturdy if unexciting vehicles suited to India’s bad roads, may have a hard time generating cost-savings and innovation from such a tie-up.

“Western firms are taking Indian and Chinese firms seriously, and it’s definitely an opportunity for them to go global and go up the value chain and product hierarchy quickly,” he said.

“But I have my doubts about how quickly they can get any direct synergies,” he said.