Tata Motors shares slide 4% as investors weigh $4.5 billion Iveco acquisition

Shares of Tata Motors fell as much as 3.7% on Wednesday to Rs 666.45 on the BSE amid market concerns over its planned $4.5 billion acquisition of Italian truck maker Iveco, the automaker’s largest ever deal, as the board prepared to approve the transaction later in the day.

The proposed acquisition marks a bold move for Tata Motors as it looks to expand its global commercial vehicle (CV) footprint, but investors appeared cautious, worried about the size of the deal, the integration risks, and the profitability outlook of the European manufacturer.

Tata’s biggest bet since JLR

Tata Motors is expected to acquire 100% of Iveco’s non-defence business from the Agnelli family’s investment firm Exor through a Dutch special-purpose vehicle, in what would be the Tata Group’s second-largest overseas buyout after Tata Steel’s $12.1 billion acquisition of Corus in 2007, and bigger than Tata Motors’ 2008 purchase of Jaguar Land Rover for $2.3 billion.

The transaction is expected to be finalised as early as Wednesday. People aware of the matter told The Economic Times that Tata Motors would purchase Exor’s 27.1% stake and make a tender offer for the remaining shares. The Iveco board and Tata Motors’ board are scheduled to meet on Wednesday to approve the deal.

Iveco confirmed on Tuesday that it was in “ongoing, advanced” talks with different parties for two separate transactions concerning its defence unit and the rest of the company, saying “the board of directors of the company is in the process of carefully reviewing and evaluating all aspects of these potential transactions.”

The defence division, which accounts for roughly 13% of Iveco’s EBIT, is being spun off and will not be part of Tata Motors’ acquisition. Iveco had earlier announced plans to separate or sell the unit by the end of 2025.

Market jitters over integration, margins

Even as Tata Motors shares slipped on the day, Iveco shares surged as much as 7.4% on Tuesday in Milan on optimism over the deal.

Analysts flagged margin pressure and execution risk as key concerns. Iveco’s commercial vehicle margins hover around 5.6%, while Tata Motors’ EBIT margin stands at 9.1%, The Economic Times reported, citing ET Prime analysis. Although a successful acquisition could nearly triple Tata’s commercial vehicle revenue from Rs 75,000 crore to over Rs 2 lakh crore, it may dilute overall profitability.

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Tata’s standalone CV business, which is expected to be listed independently soon, remains heavily India-centric, with 90% of revenue coming from the domestic market. In contrast, Iveco derives 74% of its revenue from Europe and has a presence in North and Latin America.

In FY25, Tata’s Korean subsidiary Tata Daewoo, reported Rs 5,394 crore in revenue, down 11% year-on-year, while operating margins shrank to 1% from 4%. Iveco’s industrial business, including the defence segment, is projected to generate 400 million to 450 million euro in free cash flow in calendar year 2025.

Strategic synergy, but political hurdles remain

The deal has the backing of both Exor and Iveco’s board, who see Tata Motors as a preferred buyer, in part due to historic ties between the two business groups. The Agnellis, prominent stakeholders in Ferrari and Stellantis, previously partnered with the Tata Group via Fiat Motors in India, and former chairman Ratan Tata is known for his rapport with the Italian family.

However, regulatory sensitivities persist. Iveco has long been viewed as a strategic asset by the Italian government. In 2021, Rome blocked a bid from Chinese firm FAW to acquire Iveco, which was then under CNH Industrial, also controlled by Exor. Analysts believe that carving out the defence unit and selling it to a domestic player would ease political resistance to the Tata deal.

Morgan Stanley is advising Tata Motors, while Goldman Sachs is working with Exor and Iveco. Clifford Chance is acting as legal counsel. Sources told The Economic Times that exclusivity for bilateral negotiations between the parties is due to expire on August 1.

Also read | Tata Motors set to acquire Italian truck maker Iveco for $4.5 billion in its biggest deal to date

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