The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Shritama Bose

MUMBAI, July 31 (Reuters Breakingviews) - The Tata group has a patchy record of overseas expeditions. Wednesday's all-cash 3.8 billion euros ($4.34 billion) agreed offer for Iveco's IVG.MI non-defence businesses appears to avoid past M&A mistakes. The transaction will allow the conglomerate's $28 billion Tata Motors TAMO.NS to gain access to Europe without stretching its balance sheet, and returns look reasonable, too.

Sure, the 5.8% average EBIT margin of the Iveco businesses Tata Motors is buying lags the acquirer's 9.1%. But the target's commercial-vehicle unit grew revenue almost 1% last year, per Visible Alpha. While hardly stellar, it's better than the roughly 5% drop suffered by the acquirer's top line. And the purchase will add a European presence to Tata's own trucks business, which is expected to be spun off by the end of December.

It's also a tool for the Indian group, whose 2008 buyout of Jaguar Land Rover helped it develop India's top-selling electric car, to acquire the know-how key to achieving New Delhi's push to transition to battery-powered heavy vehicles.

Some of Tata's previous overseas deals set a relatively low bar for success. It piled on leverage in its $12 billion buyout of Anglo-Dutch steelmaker Corus in 2007 and faced accusations of overpaying, to boot. Jaguar Land Rover only turned net-cash positive last financial year; slowing global growth and tariffs mean it's a mixed success, at best.

Tata Motors' shares briefly dropped 2% after the deal announcement, reflecting fears the Indian truckmaker will borrow a heap more, months after its autos division turned net debt-free.

Some of those concerns look unfounded. While Tata Motors’ net debt will rise, it's likely to stay below 2 times one-year forward EBITDA, according to forecasts compiled by Visible Alpha. Its offer values Iveco’s non-defence enterprise at just over 3 times its forecast operating income for the 2026 fiscal year, about one-third the multiple Motilal Oswal analysts ascribe to the acquirer's CV unit.

Assuming the target's operating income rises to 1.48 billion euros by the 2028 fiscal year, as estimates gathered by Visible Alpha reckon, and applying a 27% tax rate, Tata Motors stands to earn a 16% return on invested capital, well over its 11.5% weighted average cost of capital, per LSEG.

It's a sign the Tata group has learned painful yet valuable lessons from its past forays into cross-border takeovers.

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CONTEXT NEWS

Mumbai-listed Tata Motors announced on July 30 an agreed all-cash deal to buy Italy's Iveco for 3.8 billion euros ($4.34 billion) excluding debt.

The offer of 14.10 euros per share is conditional on Iveco, a maker of buses and engines, first disposing of its defence business to Milan-listed rival Leonardo.

Tata Motors will make the acquisition through its commercial-vehicle unit which it eventually plans to spin out.

In a stock exchange filing, Tata Motors noted very limited geographic overlap with Iveco and recognised the potential for synergies between the two groups, without providing a number.

Iveco's board and top shareholder Exor, which holds 43% of voting rights, both fully support the deal, Tata Motors said in the exchange filing. Exor is the investment company of the Agnelli family.

Tata Motors shares rose 0.25% to 670.3 rupees per share by 0857 GMT.

(Editing by Antony Currie; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on BOSE/shritama.bose@thomsonreuters.com))