Cash-Rich BMW Should Buy ‘Severely Challenged’ Jaguar: Bernstein
The Jaguar Land Rover Automotive Plc I-Pace Electric Concept luxury sport utility vehicle (SUV) is displayed (Photographer: Patrick T. Fallon/Bloomberg)

Cash-Rich BMW Should Buy ‘Severely Challenged’ Jaguar: Bernstein

(Bloomberg) -- We need to talk about Jaguar Land Rover.

That’s the message from Sanford C. Bernstein analysts, who say BMW AG should buy the British luxury brand from India’s Tata Motors Ltd.

“BMW is overcapitalised and awash with cash. It has run into the limits of growth for its product range and brand,” analysts including Max Warburton wrote in a research note Wednesday. “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 suggestion comes as Tata Motors’ losses mount, with a sales slowdown in China and Brexit adding to its woes. 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.

Cash-Rich BMW Should Buy ‘Severely Challenged’ Jaguar: Bernstein

Buying JLR for 9 billion pounds ($11.2 billion) could add 20% to BMW’s earnings, according to Bernstein. It would also contribute almost a quarter to BMW’s volumes, but “Tata would need to swallow its pride to sell,” the analysts said. They also said the German automaker would have to be less conservative.

Tata Motors’ shares were up 0.4% as of 2:30 p.m. in Mumbai, while BMW rose 0.2% in Frankfurt.

A deal would be “emotionally complex” due to their former relationship, when BMW owned Land Rover and the wider Rover group in the 1990s, Warburton and his colleagues wrote. “It was a traumatic period for the Bavarian company and there are executives in Munich who are still emotionally scarred by the experience.”

Still, the logic for an acquisition is compelling, they said.

BMW is working through a $14 billion savings plan and JLR is undergoing a 2.5 billion-pound savings program and cutting 4,500 jobs. The two already agreed to collaborate on their next generation of electric cars earlier this year. BMW has previously ruled out equity ties with the unit of Tata Motors.

A representative for BMW in India said Wednesday that the company doesn’t comment on speculation, while Tata Motors declined to comment.

Tata Group bought the maker of the Jaguar XE sedan and the Land Rover Discovery sport utility vehicle from Ford Motor Co. in 2008 for $2.3 billion. The Indian salt-to-software conglomerate has been exploring strategic options for JLR, including a potential stake sale, people familiar with the matter have said. Tata Group has denied that.

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