Apollo Tyres to buy Cooper Tire & Rubber Company for Rs 14,500 crore

ET Bureau | 13 Jun, 2013, 05.00AM IST

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.

Apollo Tyres eyeing Cooper Tire

The acquisition of the world’s 9th biggest tire maker by sales would give Apollo Tyres 
access to the US market for replacement tires for cars and light and medium trucks.
 Photo: Priyanka Parashar/Mint

Reuters  :Fri, Oct 12 2012. 08 32 AM IST

Apollo Tyres Ltd is in early talks to acquire a majority stake in US-based Cooper Tire and Rubber Co. in a deal valued at around $600 million, a source with direct knowledge of the situation told Reuters.

Shares of Cooper Tire jumped as much as 11% to $20.76, valuing the company at $1.3 billion. Apollo has a market value of about $840 million.

The acquisition of the world’s 9th biggest tire maker by sales would give Apollo Tyres access to the US market for replacement tires for cars and light and medium trucks.

Apollo Tyres has hired Standard Chartered and HSBC for a secondary share sale in the Indian market to raise up to $150 million, the source said.

It is also in talks with Standard Chartered for financing, this person said.

Apollo Tyres will use fresh borrowing and proceeds from the share sale, expected mid November, to finance the deal, the source added.

Apollo Tyres, which does not currently operate in the US, gets two-thirds of its revenue from India but its market in that country is softening along with the economy.

Truck tires account for about 60% of its sales in India and half of its global sales.

“Apollo Tyres has a target to become a global top-10 tire maker by 2016 and this deal...could comfortably get them there,” Morgan Stanley analysts led by Ravi Shanker wrote in a client note.

Tire makers are under pressure from rising rubber and oil costs and weakening demand. Cooper rival Goodyear Tire and Rubber Co. said in July it expected raw material costs to rise about 7% in 2012.

Cooper Tire focuses on replacement tires, an area of the market that is expected to benefit from growing fleets of aging vehicles in the United States, S&P Capital IQ analyst Efraim Levy said.

Apollo Tyres reported revenue of Rs.12,150 crore in the year to 31 March.

On a buying spree

Apollo Tyres bought South Africa-based Dunlop Tyres International Ltd in 2006 and Dutch tire-maker Vredestein Tires in 2009.

“Apollo has some familiarity with Cooper—Dunlop SA has until recently been the sole distributor of Cooper Tires in South Africa,” the Morgan Stanley analysts said.

Cooper Tire had net sales of $3.93 billion in 2011. The company is scheduled to report third-quarter results on 2 November.

Cooper Tire declined to comment. “We have a strict policy of not commenting on rumors and speculation in the market,” company spokeswoman Anne Roman said.

A spokesman for Apollo Tyres also declined to comment.

Cooper Tire’s stock was up 6% at $19.74 on the New York Stock Exchange on Thursday afternoon. Goodyear’s shares were up 2% at $12.56.

Apollo Tyres’ shares closed 2% higher on the National Stock Exchange. Reuters

  

Apollo Tyres – Buy

Investors with a two-year perspective can consider buying the 

stock of Apollo Tyres. At its current price of Rs 55.75, the stock

discounts its trailing 12-month earnings by 8 times.

Sustained growth in tyre demand from the original equipment

makers (OEMs) and a pick-up in the replacement market from 

the first quarter of the current fiscal are major positives for the company.

 

Demand in the commercial vehicles segment is beginning to pick up 

and is expected to further improve in the months to come. 

The company's broad-based customer profile and imminent

ramp-up in capacity position it well to capture this demand.

Operations at its greenfield plant in Chennai, which has the 

capacity to produce radial tyres for both passenger cars 

and commercial vehicles, are set to commence by the first

quarter of FY 11. This is likely to increase its market share in 

the OEM segment. At present, sales to OEMs account for just 

14 per cent to the total sales.

The replacement market, which offers better margins and

 superior pricing power, is now Apollo Tyres' key source of 

revenue, accounting for 74 per cent of sales. The company 

has a strong brand recall and healthy market presence in 

this segment with over 4,000 network partners and 2,000

exclusive dealers. 

Due to muted economic activity, buyers,

especially in the trucks and buses segment, 

deferred replacement decisions for most of 2008.

However, a revival in the economy by the first quarter of 2009 

and pent-up demand have helped tyre-makers stage a 

strong comeback.

From April to November 2009, the replacement market grew

11.7 per cent. While the truck and bus segment grew

15 per cent year-on-year, the passenger vehicles 

segment grew by just about 1 per cent. Apollo Tyres'

strong presence in the replacement market made

it one of the early beneficiaries of the revival.

The nine months ended December 2009 saw the 

company's sales expand by 26 per cent, while

operating profits almost doubled. Net profits swelled 

from Rs 61.93 crore to Rs 298.81 crore. On the back

of a healthy demand growth, the company is well-positioned

to sustain the profit growth in the months ahead.

Raw material costs, mainly natural rubber, which account 

for 60 per cent of the total cost, have started spiralling once

again and are up by over 30 per cent from their 2009 lows. 

However, market leadership allows Apollo Tyres the pricing 

power to pass on this burden to its customers; tyre prices 

have been hiked by 5-10 per cent across markets. 

This may partially help the company retain its current 

operating profit margins of 15 per cent. About 11 per cent 

of Apollo Tyres' revenue is generated through exports. 

The export market mainly caters to passenger cars, 

whose sales are showing signs of revival across the globe.