Jaguar Shifts Gears, Backs Buyout by Ford
Ford Motor Co. was a giant step closer to buying a legend Thursday after management of the struggling Jaguar PLC suddenly changed tactics and recommended that its shareholders accept the American firm’s $2.5-billion cash bid to take over the British maker of luxury cars.
The deal, which must still be approved by 75% of Jaguar’s stockholders, represents a Ford coup over its chief rival, General Motors Corp., which had also been bidding for a stake in Jaguar.
Shortly after Thursday’s joint announcement by Ford and Jaguar, GM said it was dropping out of the contest because it considers the price too high.
Jaguar’s chairman, Sir John Egan, had previously expressed determination to keep Jaguar independent, rebuffing Ford’s advances and entering into talks with GM on the sale of a minority share in return for needed development funds.
Asked at a London press conference Thursday what had changed his mind, Egan responded, “Independence is one matter; the shareholders’ requirements is another matter, and also, looking at the requirements for finance and technology for the future is another one.”
While admittedly disappointed that Jaguar would become foreign-owned, he called the Ford deal “a better way forward for both companies.”
The way was cleared earlier this week when Trade Secretary Nicholas Ridley said the government as prepared to waive its so-called golden share in Jaguar, which prevents any stockholder from accumulating more than a 15% interest in the company.
The arrangement was part of Jaguar’s 1984 privatization and was specifically meant to protect it from a foreign takeover until the end of 1990. But Ridley said it had become clear that the government had to stand down for the long-term good of the company. Jaguar said the government made the move without consulting it.
Ford’s offering price is equal to $13.35 a share, more than double the price of Jaguar stock the day before Ford announced in September that it was interested in buying a stake. Jaguar closed at $13.02 a share Thursday on the London Stock Exchange, down from Wednesday’s close of $14.26. On the New York Stock Exchange, Ford closed Thursday at $46.50, down 62.5 cents.
Financial analysts here agreed that Ford is offering a substantial premium over Jaguar’s book value in order to buy a famous automotive name with a history reaching back indirectly to the first British motor car.
Ford and GM were both interested in the company as an established entry into a growing European luxury car market in which neither has a strong competitive model at present.
Since privatization, Jaguar has proved to be too small to afford the kind of research and new-model development necessary to keep pace with such well-heeled competitors as Mercedes-Benz and BMW, or with the new lines of luxury models from Japan’s Nissan and Toyota.
The company, which traditionally counts on the American market for 60% of its sales, has seen American sales decline since the 1987 stock market crash. Also, the weakening of the dollar against the British pound has made British cars more expensive in the United States.
As a result, the company earlier this year reported its first six-month loss since privatization.
Concerned with a possible public backlash over the takeover of yet another famous British automotive name, the Ford of Europe chairman, Lindsey Halstead, emphasized at the press conference here Thursday that the goal is “to retain and build on Jaguar’s strength,” not to submerge its identity into the parent company’s.
Britain’s once-proud domestic auto industry has already lost such famous names as Morris and Triumph. Last summer, it was announced that Japan’s Honda is taking a 20% share in the Rover Group, which is the country’s only surviving high-volume car maker.
Assuming that Ford’s purchase of Jaguar gets shareholder approval, as expected, it will leave Rolls-Royce as the largest wholly British auto maker, with an output of fewer than 3,000 cars a year.
Jaguar expects to build and sell about 50,000 cars in 1989, down from about 52,000 the year before.
Doug Henderson, the Labor Party spokesman on trade matters, said the Ford deal shows that the government was wrong to give up its golden share “just at the time when it was necessary to get the best deal for Jaguar and Britain.”
He said he will try to arrange an urgent meeting with Ford “to seek guarantees on future production, model development and research and development.”
Nonetheless, the bid is not expected to encounter any serious political trouble.
Halstead, the Ford of Europe chairman, was asked whether Ford will move Jaguar’s production operations, and he replied: “We certainly don’t contemplate that at this point in time. We expect that the production will be centered in the West Midlands, as it is today.”
According to the joint announcement, Ford will expand Jaguar’s research and development capability at its headquarters in Coventry. It said the firms intend “that there will be continuity of employment for the Jaguar work force.”
Egan said: “Ford were prepared to make satisfactory guarantees about how the business would be run in the future. Jaguar will be an independent company with a board that has its own funding arrangements.”
His own future is uncertain, he said, adding: “I hope to stay with the company to make sure these plans have made a good start. Whether I stay is a matter of agreement between Lindsey (Halstead) and myself.”
Auto industry analysts here said that Ford is expected to invest considerable additional money in Jaguar in order to speed production of a new executive sedan and a sports model long rumored as a successor to the famous E-type Jaguar.
Presumably, Ford will want to increase significantly Jaguar capacity of approximately 60,000 units a year if it is to compete in Europe with such large-volume manufacturers as Mercedes and BMW.
The acquisition of Jaguar could make Ford the largest British auto maker. It now ranks a close second to the Rover Group. Ford of Britain employed 48,000 people last year and produced 508,000 cars and light trucks.
With its purchase of Jaguar, Ford is buying into a luxury market that it couldn’t enter on its own. D1
BACKGROUND
Jaguar had humble origins. The company traces its roots back to a garage in Blackpool, northern England, where in 1922 William Walmsley started building flashy sidecars for motorcycles. The company branched out into cars and in 1927 announced the first Austin Swallow Two-Seater. The name Jaguar was introduced in 1935 with a new line that attempted to provide the style of the prestigious Bentley at a cheaper price. In 1945, the firm changed its name from Swallow Sidecar Co. to Jaguar Cars Ltd. In 1948, the celebrated Jaguar XK120 was recognized as the fastest car in the world. Jaguar’s most famous mass-production sports car, the E-type, first appeared in 1961.
Ford could become the largest auto maker in Britain if stockholders of Jaguar, the legendary maker of prestige autos, accept Ford’s $2.5 billion cash buyout offer.
