Tire manufacturer Apollo Tyres is in early talks to acquire a majority stake in U.S.-based Cooper Tire & 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 percent 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 U.S. 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.
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Apollo Tyres will use fresh borrowing and proceeds from the share sale, expected mid November, to finance the deal, the source added.
News of the deal talk was first reported by a leading daily on Thursday.
Apollo Tyres, which does not currently operate in the United States, 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 percent 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 & Rubber Co said in July it expected raw material costs to rise about 7 percent 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 121.5 billion rupees in the year to March 31.
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 November 2.
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 percent at $19.74 on the New York Stock Exchange on Thursday afternoon. Goodyear's shares were up 2 percent at $12.56.
Apollo Tyres' shares closed 2 percent higher on the NSE.