NEW DELHI: Apollo Tyres, India's largest tyremaker by revenues, has agreed to acquire Cooper Tire & Rubber Company of the US in an all-cash transaction for about Rs 14,500 crore ($2.5 billion), a deal that will make the Indian tyremaker the world's seventh largest. The acquisition, one of the biggest by an Indian firm in the automotive sector, will provide Onkar S Kanwar's company a footprint in the Chinese and US markets.
Cooper Tire & Rubber is the parent company of a global group of firms that specialise in the design, manufacture, marketing and sales of car and light truck tyres. Cooper is the largest supplier of tyres to Sears, the US retailer. ET NOW had, on October 11, 2012, first reported on Cooper Tire's possible acquisition by Apollo Tyres, and a report was carried in ET's October 12 edition. A wholly owned arm of Apollo Mauritius Holdings will buy Cooper Tire at $35 a share from American shareholders in an all-cash transaction, which represents a 40 per cent premium to Cooper's 30-day volume-weighted average price on the New York Stock Exchange.
Following the close of transaction and regulatory approvals — expected by the second half of 2013 — Cooper Tire would become a privately held firm, a press release issued by the company said. Apollo Tyres Chairman Onkar S Kanwar said, "This transaction provides an opportunity to serve customers across a host of geographies in both developed and fastgrowing emerging markets around the world."
A consortium of four investment banks — Deutsche Bank, Goldman Sachs, Morgan Stanleyand Standard Chartered — will raise $2.5 billion in new debt for Apollo and Cooper to fund the acquisition, said Apollo Tyres Chief Financial Officer Sunam Sarkar. Of this, around $1.8 billion will be raised through issue of bonds, a company executive said, while another $300 million will be brought in by way of asset-based lending through a step-down subsidiary based in Europe.
The Indian company will need to service new debt of $450 million post the acquisition while the remaining debt would be serviced by Cooper's subsequent cash flows. Apollo Tyres currently has net debt of Rs 2,300 crore, of which Rs 500 crore is said to be foreign debt. The $2.4-billion Apollo Tyres, which derives two-thirds of its revenues from India, will now have presence in markets across four continents. Nearly 23 per cent of its revenues come from Europe and the rest from North America.
The cumulative revenues of the combined entity, would be around Rs 35,000 crore ($6.6 billion), going by 2012 figures. The acquisition will enable Apollo to iron out the cyclical nature of its business, which is tilted in favour of the truck tyre business that is affected by the ups and downs in the economy.
Leading tyremakers have 70-80 per cent of their business accruing from car tyres, which is less affected by business cycles, whereas Apollo receives 35 per cent of its revenue from this segment, according to a May 15 Deutsche Bank report authored by Amyn Pirani andSrinivas Rao.
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