Apollo Tyres to buy Cooper Tire for $2.5 billion

Wed Jun 12, 2013 10:19pm IST

Related Topics

Stocks

   

REUTERS - Apollo Tyres Ltd(APLO.NS) agreed to buy U.S.-based Cooper Tire & Rubber Co(CTB.N) for about $2.5 billion in a deal that would make it the world's seventh-largest tire maker and reduce its dependence on a slowing Indian auto market.

The acquisition of Cooper -- the second biggest U.S. tire maker and No. 11 globally with annual sales of $4.2 billion -- will give Apollo access to the U.S. market for replacement tires for cars and light and medium trucks, Cooper's main business.

Apollo, which currently gets two-thirds of its revenue from India, will pay $35 per share, representing a premium of about 43 percent to Cooper's Tuesday close.

"It is very important for us to expand our horizons. Especially in the long run, the U.S. market is going to look up ... ," Apollo Chairman Onkar Kanwar said on a conference call on Wednesday.

The deal is the latest in a string of big overseas acquisitions by Indian companies in recent years, including Tata Motors Ltd's (TAMO.NS) $2.3 billion purchase of Jaguar Land Rover and mobile operator Bharti Airtel Ltd's (BRTI.NS) $9 billion takeover of the African operations of Kuwait's Zain.

It is also another example of an Asian company buying a well-known U.S. firm, coming just two weeks after China's Shuanghui Group agreed to buy Smithfield Foods SFD.N for $5 billion.

"The U.S. is an untapped market for Apollo. And the U.S. market is obviously big, and among the developed markets, it is the only one that is growing significantly," said Nishant Vass, auto analyst, at Mumbai-based brokerage ICICIdirect.

Indian car sales fell 7 percent in the financial year that ended in March, the first annual fall in a decade, while sales in Europe, Apollo's second-largest market, are at a 20-year low.

But auto sales are one of the bright spots for the U.S. economy. Sales in the second biggest auto market after China rose more than expected in May as construction workers and oil drillers bought more pickup trucks, and they are expected to remain strong for the rest of the year.

INDUSTRY CONSOLIDATION UNLIKELY

The deal values Cooper at 4.4 times its EBITDA (earnings before interest, tax, depreciation and amortization), which Apollo said was within the range of 3.5 to 6 times multiples seen in recent transactions in the sector.

Cooper's main investors are institutions, topped by BlackRock Institutional Trust Co and Vanguard Group Inc with about 7 percent stake each.

Cooper shares were up 40 percent at $34.46, just below the offer price, in early afternoon trading on the New York Stock Exchange.

Shares of Goodyear Tire & Rubber Co (GT.O), the biggest U.S. tire maker, rose on the news but an analyst said it was unlikely the Cooper sale would trigger more deals in the industry.

"... The top of the market is already consolidated," Morgan Stanley analyst Ravi Shanker said on a note to clients.

Findlay, Ohio-based Cooper employs nearly 13,000 people around the world. Apart from North America, it has manufacturing facilities in England, Serbia, Mexico and China.

Kanwar has expanded Apollo, which had revenue of $2.5 billion in 2012, after taking control of the company in 2002, following a prolonged public spat with his father, who founded the company in 1976.

His previous acquisitions include South Africa-based Dunlop Tyres International Ltd in 2006 and Dutch tire-maker Vredestein Tires in 2009.

Reuters and others reported in October that Apollo and Cooper were in talks for Apollo to take a stake in the company.

Apollo said it would raise $2.5 billion in new debt to fund the deal, of which $2.1 billion would be through the issue of dollar bonds with a tenure of seven to eight years.

Cooper, whose roots go back a century, is known for brands including Cooper, Avon, Mastercraft, Dean and Starfire.

Apollo said it would launch some Cooper brands in the Indian market, but did not give a specific timeframe.

The company said it plans to keep Cooper's management.

Apollo shares closed up 2.7 percent at 91.95 rupees in Mumbai trading ahead of the announcement.

Morgan Stanley & Co, Deutsche Bank Securities and investment firm Greater Pacific Capital advised Apollo on the deal. Bank of America Merrill Lynch was financial adviser and Jones Day was legal adviser to Cooper.

(Editing by Saumyadeb Chakrabarty)

FILED UNDER:

INTERNAL SECURITY

REUTERS SHOWCASE

Setback For Sahara

Setback For Sahara

Supreme Court defers verdict on Sahara plea to raise more debt on hotels  Full Article 

SpiceJet Crisis

SpiceJet Crisis

SpiceJet says fleet grounded on lack of fuel  Full Article 

Drug Patents

Drug Patents

Novartis sues Cipla over respiratory drug Onbrez   Full Article 

Boost for Tata Steel

Boost for Tata Steel

Tata Steel restarts key iron mines amid shortage  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

India Outlook

India Outlook

ADB trims growth forecasts for developing Asia, says India to grow 5.5 pct in 2014  Full Article 

Real Estate

Real Estate

HDFC to raise $500 mln real estate private equity fund - sources  Full Article 

Banking Sector

Banking Sector

Japan banks to bulk up India presence on improving ties   Full Article 

U.S. Spending Bill

U.S. Spending Bill

Obama signs bill $1.1 trillion government spending bill  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage