Jaguar PLC Case Solution
Value Created by the acquisition from Ford:
Currently, Ford is not operating in the luxury car manufacturing industry, on the other hand Jaguar is successfully competing in this industry. Acquiring Jaguar might allow Ford to exploit the luxury car manufacturing industry, furthermore, the risk of Ford and Jaguar will be mitigated and diversified as a result of acquisition, because the Ford and Jaguar will be less dependent on the luxury car manufacturing industry. It can be said that Jaguar is considering to manufacture cars which are cheaper to develop, and Ford has great competencies in developing affordable cars.The management of Jaguar will get great assistance from the management of Ford in developing these economical cars.
As Ford has huge financial reserves available, it might help in financing the operations of Jaguar.Currently, jaguar is finding it difficult to obtain finance at a cheaper rate, and is using retained reserves to finance its growth prospects. However, in order to update the production plants and to launch new models of cars, it requires high capital expenditures which is unlikely to fulfill through internal funds, this finance requirements could be fulfill by Ford if it acquires Jaguar.
In addition to this, both the companies can obtain substantial economies of scale by collaboration, the marketing and administrative departments can be combined of both the companies.It could add great value to both the companies and to their customers as well, as Ford and Jaguar can offer tier cars at a lower prices, due to the savings in the operating costs. Not only this the research and development departments can also be merged, in order to obtain more economies of scale.
Value of Jaguar:
Based on the Exhibit 7, the value of Jaguar Plc is approximately £20,742 million. However, certain assumptions are made in calculating the value of equity of Jaguar Plc, which are as follows.
- The cost of equity is used in calculating the value of Jaguar Plc.
- Beta of Jaguar Plc is assumed to be 1.4.
- The spot rates are calculated by purchase power parity theory, and it is assumed that inflation rates will remain same from 1990 to 1995.
- It is also assumed that all the financial projections presented in the Exhibit 7 are accurate.
- It is assumed that capital expenditure will increase, as it was increasing in the previous years.
Price of Jaguar:
Price of Jaguar will be increased if the interest rates in all the countries increases, due to the fact that the value of currency will depreciate, when the interest rates increases. As opposed to this the price of Jaguar Plc will be decrease if the interest will reduced again this is particularly, due to the appreciation in the value of currency when the interest decreases.
Currency Jaguar should manage more:
As the main market of Jaguar is U.S. and most of the sales of Jaguar comes from the U.S. it can be said that Jaguar should have to give more consideration to the $.It is because fluctuation in the U.S. might have drastic impact on the profits of Jaguar.
Furthermore, it is anticipated that revenues will increase more from the United States, that is why Jaguar should manage the movement in the US$ more critically. By analyzing the Exhibit four it can be said that fluctuations in US$ is more than any other currency, this is another factor which suggests that Jaguar should have to give special considerations to the movement in US$. On the other hand the U.S. economy is facing continuous difficult conditions, and the currency of U.S. is particularly more sensitive than the other currencies. It is because of the certain risks attached to it, this factor also supports the conclusion that management should have to focus on US$.
Exposure of Jaguar to $:
Jaguar is expose to the fluctuation in the value of $, as the profits and sales of Jaguar largely depends on the cash flows, that are generated from the United States.It can be said that slight fluctuation in the value of the US$ could have a great impact on the cash flows of Jaguar. The impact can be negative as well as positive.However, the chances of impact being negative are way too high, due to the continuous depression and worsening of the US$.
As happen in the recent past, the U.S. economy faces great recession and the stock market has been crashed.These difficult trading condition impacted the demand of the cars of Jaguar, which ultimately results in the losses being made by the Jaguar. Moreover, fluctuations in the U.S..........................................