German auto major BMW should acquire the financially challenged Jaguar Land Rover from Tata Motors, according to analysts with Sanford C. Bernstein.
A report by Bloomberg quotes a research note by analysts including Max Warburton as saying: "BMW is overcapitalised and awash with cash. It has run into the limits of growth for its product range and brand."
"JLR is severely challenged, both operationally and financially, but could massively lower both its fixed and variable costs under the wing of a bigger partner," the note said. The suggestion comes on the backdrop of increasing losses of Tata Motors.
Slowdown in both global and domestic sales and Brexit adding to its problems, Tata Motors is facing serious issues. The Bloomberg report further said that BMW is also navigating trade tensions between the U.S. and China that have weighed on profit, and the unresolved political future of the U.K., where it makes Mini and Rolls-Royce cars.
As per Bernstein, buying JLR for 9 billion pounds ($11.2 billion) could add 20 per cent to BMW's earnings. It would also contribute almost a quarter to BMW's volumes, however, Tata would need to swallow its pride to sell, the analysts said. They also observed the German major would have to be less conservative.
As per the research note, a deal would be "emotionally complex" due to their former relationship, when BMW owned Land Rover and the wider Rover group in the 1990s. "It was a traumatic period for the Bavarian company and there are executives in Munich who are still emotionally scarred by the experience," it said.
Still, according to the analysts, the logic for an acquisition is compelling. BMW is working on a $14 billion savings plan and JLR is undergoing a 2.5 billion-pound savings programme and cutting 4,500 jobs. The two auto majors earlier in the year agreed to collaborate on their next generation of electric cars.
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