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In what is expected to be the largest outbound deal in the Indian automobile industry, Apollo Tyres today said it would acquire US-based Cooper Tire & Rubber Company, maker of car and light truck tyres, in an all-cash transaction of around Rs 14,500 crore ($2.5 billion).
A wholly-owned subsidiary of Apollo Mauritius Holdings will pay Cooper stockholders $35 a share in cash — a 40 per cent premium over the stock’s 30-day volume-weighted average price.
The shares of Apollo Tyres today closed at Rs 92 apiece, up 3.02 per cent from their previous close, on BSE.
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The two companies, the combined sales of which stood at $6.6 billion in 2012, would together form the seventh-largest tyre company in the world after the acquisition is completed. This is Apollo’s third major foreign acquisition after those of Dunlop South Africa for Rs 290 crore in 2006 (sold to Japan’s Sumitomo Rubber Industries for Rs 340 crore last month) and Netherlands-based Vredestein Banden BV for an undisclosed sum in 2009. (A GIANT IN THE MAKING)
A consortium of four banks — Morgan Stanley, Deutsche Bank, Goldman Sachs and Standard Chartered — will raise $ 2.5 billion of new debt for Apollo to fund the acquisition. Of this, while $1.8 billion will be raised through issue of bonds, another $300 million will be brought in via asset-based lending. An additional debt of $400 million on books of Cooper Tire will also get rolled over to Apollo. The Indian company will, however, service new debt of $450 million after the acquisition — the remaining debt would have exposure to Cooper’s cash flows.
Yaresh Kothari, auto analyst, Angel Broking, said Apollo Tyres’ debt-to-equity ratio would increase to 3.8 from the present 0.8 after the acquisition.
“This strategic combination will bring together two companies with highly complementary brands, geographic presence, and technological expertise to create a global leader in tyre manufacturing and distribution,” said Apollo Tyres Vice-Chairman & MD Neeraj Kanwar.
Apollo Tyres, which currently does not operate in the US, gets two-thirds of its revenue from India, where a weak economy has hurt demand for cars and commercial vehicles. The acquisition of Cooper, the world’s 11th-largest tyre company by revenue, would give it access to the US market for replacement tyres for cars and light and medium trucks. The deal would also give Apollo brands access to the market in China, the largest in the world for commercial vehicles.
“The combined company will be uniquely positioned to address large, established markets, such as the US and the European Union, as well as the fast-growing markets of India, China, Africa, and Latin America, where there is significant potential for further growth,” said Apollo Tyres Chairman Onkar S Kanwar.
These ongoing benefits of the acquisition are expected to be fully realised after three years and derived from operating scale, sourcing benefits, technology, product optimisation and manufacturing improvements. The transaction is expected to be immediately accretive to Apollo’s earnings. The combination is expected to deliver value-creation benefits of Rs 465-700 crore ($80-120 million) a year at the Ebitda level, according to Apollo.
Before this one, the largest deal involving an Indian automotive company was Mumbai-based Tata Motors’ $2.3-billion acquisition of Jaguar Land Rover from Ford Motor Company in 2008.
In the domestic tyre space, private equity firm KKR recently acquired 90 per cent stake in Alliance Tire Group for around $500 million. Earlier in 2008, JK Tyre & Industries, promoted by the Singhanias, had acquired Mexican tyre company Tornell for Rs 270 crore.
Morgan Stanley & Co and Deutsche Bank Securities served as financial advisors to Apollo, while investment firm Greater Pacific Capital acted as strategic & financial advisor.
The close of the transaction — assuming timely regulatory approvals and other customary closing conditions, as well as approval by Cooper’s stockholders — was expected to take place within the second half of 2013, said Apollo Tyres CFO Suman Sarkar. Cooper will become a privately-held company and its common stock will no longer be traded on NYSE. Cooper will continue to be led by members of its current management team and operate out of its facilities around the world.
Also, Cooper will continue to recognise the labour unions and honour the terms of collective bargaining agreements currently in effect, while generally maintaining compensation and benefit levels for non-union employees.
Founded in 1914, Cooper supplies premium and mid-tier tires worldwide through brands such as Cooper, Mastercraft, Starfire, Chengshan, Roadmaster and Avon.
