TaMo to power Iveco deal with loans, equity, stake sale

MUMBAI: Tata Motors plans to raise 1 billion euros in equity and monetise its stake in the IPO-bound Tata Capital to finance the 3.8-billion-euros (Rs 38,060 crore) Iveco acquisition. It will initially use a bridge loan from Morgan Stanley and Japan’s MUFG to finance the deal. Once the transaction is completed, Tata Motors will refinance the bridge loan through equity and long-term debt. “After the bridge loan is drawn down next April, it will take about 12 months to raise equity and long-term debt to term out the bridge loan,” Tata Motors CFO PB Balaji said. The refinancing strategy includes potential rights issue and stake-monetisation in Tata Capital, valued between $18-20 billion. “Both Tata Motors and Iveco are cash flow positive and don’t need money to fund their business investments. So their cash flows will also contribute to loan repayment,” Balaji added. This marks the first significant acquisition where Tata Motors’ promoter Tata Sons won’t provide debt or financial guarantees, due to RBI restrictions on unregistered core investment companies. Tata Motors has offered 14.1 euros per Iveco share. If Iveco receives a competing cash offer which is more than 9.5% of Tata Motors’ offer and its board finds it more advantageous, then Tata Motors has the option to match it. If Tata Motors is unable to match the superior offer, then both Iveco and Tata Motors can terminate the deal, with Iveco paying a break-up fee of 38 million euros (about Rs 381 crore) to Tata Motors. Additionally, if Iveco’s board withdraws or modifies its endorsement of Tata Motors’ proposal following a material event, the Italian truck maker must still pay a break-up fee of 38 million euros to Tata Motors. Tata Motors has agreed to a set of non-financial covenants (NFCs) in respect of Iveco’s employees, governance, etc for two years post deal completion. It is prevented from making any material restructurings or closing any plants owned or used by Iveco during the NFC period. Two independent Iveco board members will oversee NFC compliance, the Indian company said. Iveco, headquartered in Turin, employs 32,000 people across 19 industrial and 30 R&D sites globally. Tata Motors requires to acquire at least 80% of Iveco shares to delist the company from Euronext Milan stock exchange. The Indian company believes that having Iveco operate in a wholly-owned set up will better serve long-term success. The acquisition will elevate Tata Motors to fourth position globally in truck sales, behind Daimler, CNHTC and Traton. Iveco’s 2024 revenue reached 14.1 billion euros with 891 million euros operating profit. Trucks are the biggest contributor to its revenues followed by powertrains and buses.