A Strategic Acquisition for the Mondelez Board
When Mondelez International holds its annual shareholders' meeting on May 21, Ratan Tata will be among the new additions voted onto the board of directors. Tata, 75, is the recently retired chairman of the Tata Group, the Indian conglomerate notable for deriving nearly 60% of its $100 billion revenue outside of India.
In adding Tata to the board, Mondelez gains not only a businessman steeped in the complexity of gaining market share in developing markets, but a veteran of diversifying revenue across borders. Mondelez's global strategy rests on spending disproportionately on its power brands: its biggest, most recognized brands that inspire customer loyalty. Tata grew his namesake's company over decades by shrewdly acquiring companies and power brands that supercharged corporate revenues and profits.
A global brand or two can make all the difference
In 2008, Ford Motor was struggling with a near-lethal debt load. Total automotive liabilities (defined as company liabilities excluding automotive finance operations) of $99.3 billion outpaced total automotive assets by roughly $25 billion. Shareholders' equity was $17.3 billion underwater. Ford needed to focus on its core operations, and was seeking to unload various nonessential brands it had acquired over the years. After disposing of the venerable Aston Martin moniker in 2007, Ford set out to sell Volvo, Jaguar, and Land Rover. At the same time, Ratan Tata wanted to expand the Tata Group's global presence, and had zeroed in on its automobile subsidiary, Tata Motors. Tata Motors began as a builder of diesel engines and locomotives for the Indian railway system in the 1940s. By the mid 2000s, it was on the prowl to increase its international profile, inking joint venture deals from Brazil to South Korea. And as global carmakers go, it was tiny: Its 2007 revenue of $7.7 billion was about 22 times less than Ford's revenue of $172.46 billion during the same year.
In March 2008, Tata Motors purchased both the Jaguar and Land Rover brands from Ford. Tata Motors, which had only $242 million of cash on hand when the year started, went to the capital markets and issued shares to complete the $2.3 billion deal. Ford thanked Tata for the pocket change and moved on.
Tata Motors has more than tripled its revenues since the acquisition, and quadrupled its profits to $2.25 billion, with over 63% of its revenue deriving from the two British brands, now under a single Tata Motors division named "Jaguar Land Rover." And for Ford, executing the decision to sell off historic, premium brands in order to revitalize its core business was a strategic masterstroke. Today, the negative shareholder's equity of $14.6 billion has swung powerfully to the reverse: Ford's shareholder's equity as of its most recent quarter stands at positive $17.6 billion.
Unilever and Nestle
Ratan Tata will also bring considerable experience in waging multifront battles against Mondelez's very worthy conglomerate competitors. In 2000, Tata Group subsidiary Tata Tea (later renamed Tata Global Beverages) purchased the Tetley Tea Group for $432 million. Tata Global Beverages is now the second-largest tea manufacturer in the world. The company competes against Unilever -- maker of the ubiquitous Lipton tea, the world's best-selling tea brand -- in its backyard in India, and around the world. Unilever has been in India since the late 19th century, and is a benchmark competitor for any consumer goods corporation seeking to gain a slice of the powerful Indian consumer market. Nestle is another titan Mondelez will face off against in the coming years. Last year, Nestle put forward that it wants to increase its revenue from emerging markets from 40% to 50% by the end of the decade, with an emphasis on India and China. The company recently opened its first research and development center just outside of New Delhi. Tata should be able to provide pertinent strategies to Mondelez as it allocates resources to gain shelf space from both Nestle and Unilever, as well as a plethora of local brands.
Ratan Tata will bring a battle-tested business acumen to Mondelez's core ambition: to grow revenue worldwide at a clip of 5%-plus. Look for him to advise Mondelez not only on how to increase volume in BRIC countries and other developing markets, but also on strategic acquisitions that will strengthen Mondelez's vaunted power-brand portfolio.
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The article A Strategic Acquisition for the Mondelez Board originally appeared on Fool.com.Fool contributor Asit Sharma has no position in any stocks mentioned. The Motley Fool recommends Ford and Unilever. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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