The emergence of at least two US-based bidders has turned the sale of the UK-based units from possibility to probability, but Ford will wait till year-end for their markets to settle beneath their private equity backers.
Ford may have lost the ability to sell most of its cars at profit, but its expertise at selling divisions could set a new industry standard. Rival bidders are lining up for its Jaguar and Land Rover units, despite their substantial contribution to its losses of $12.6 billion in the last financial year. The company says it will wait until the end of 2007 for bidders to set their prices and settle their credit lines, with CEO Alan Mulally saying there is now more than a 50% chance of an acceptable offer coming in. Prospective buyers have been sufficiently enthusiastic for Ford to consider offering its Volvo unit as well.
Former managers of Jaguar are showing a loyalty to the brand that hasn’t always been evident among its owners. One bid for the luxury unit is expected to come from Nick Scheele, who ran it for most of the 1990s before becoming Ford COO and president in 2001-5. But rival bidders are set to include Jacques Nasser, the former CEO who sealed the Land Rover acquisition in 2000. Both former executives have assembled large private-equity backing, Nasser’s from One Equity and Scheele from Ripplewood Holdings. Ford believes this level of interest can push the sale price to between $1.5-2.0 billion.
Potential outside contenders, which include expansive Indian auto groups Mahindra & Mahindra and Tata, are also likely to seek private equity partners if they enter the fray. So markets’ increased reluctance to support the high debt loading favored by private equity could still jeopardize the sale. The difficulties of Virgin Media, already struggling with high debt, in lining up a private equity buyer are thought to have contributed to CEO Steve Burch’s sudden departure this week; and major US private equity houses have Carlyle and KKR have had to postpone their initial public offerings. The big private equity acquisitions that have gone through since mid-year, such as that of carmaker Chrysler by Cerberus, have generally gone ahead only when the buyers lowered the ratio of debt to equity in the deal, and the same tweaking may be needed for the sale of UK supermarket Sainsbury’s to Delta Two. (financeweek.co.uk)