Apollo Tyres Ltd has said it will acquire New York Stock Exchange-listed Cooper Tire & Rubber Company for $2.5 billion (Rs 14,500 crore) in an all-cash deal. In what is apparently the company's most ambitious move, Apollo Tyres is going to buy a firm over three times its size in terms of market capitalisation and more than double in terms of sales.
The transaction will be this year’s largest merger & acquisition deal involving an Indian company, after Mylan acquired Strides Arcolab’s generic injectables unit Agila for $1.6 billion in February, according to VCCEdge, the financial research arm of VCCircle.
Apollo Tyres, promoted by the Kanwar family, will merge a wholly owned subsidiary with Cooper as a part of the transaction to create the seventh-largest tyre company in the world with revenues of $6.6 billion. The deal will also ensure Apollo Tyres' access to the North American markets where it has a negligible presence. Interestingly, these are the markets from where Cooper derives most of its revenues.
Share of Apollo Tyres closed at Rs 92, up 3.02 per cent on Wednesday, giving the company a market capitalisation of Rs 4,636 crore.
“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,” according to a company statement issued after market hours.
Cooper stockholders will receive $35 per share in cash, 40 per cent premium to its 30-day volume-weighted average price. The company’s share price closed at $24.56 on Tuesday, giving it a market capitalisation of $1.56 billion.
Cooper is the 11th largest tyre company in the world by revenue and currently supplies premium and mid-tier tyres worldwide under brands such as Cooper, Mastercraft, Starfire, Chengshan, Roadmaster and Avon. The company reported 7.5 per cent upside in revenues to $4.2 billion in 2012, with 70 per cent coming from the North American market. Cooper Tire had operating profit of $163 million for 2012, up 4.2 per cent.
However, it remains to be seen how Apollo Tyres will fund this transaction. VCCircle reported last year that the company had dropped its plan to raise $150 million through a qualified institutional placement (QIP) and it is now looking to raise around $100 million from private equity investors.
Apollo Tyres' net debt declined to Rs 2,300 crore in Q4 FY13 with net debt to equity ratio down to 0.7 against 1.0 in the previous year.
Apollo Tyres saw revenues move up 5 per cent to Rs 12,800 crore or $2.2 billion in FY13 and the deal will stretch its lead over MRF as the largest Indian tyre-maker by revenues. The company's net profit was up 54 per cent to Rs 612 crore during FY13.
The transaction comes weeks after Apollo Tyres agreed to sell its Durban-based unit called Apollo Tyres South Africa Pty Ltd (ATSA) for $60 million (Rs 335 crore) to Sumitomo Rubber Industries Ltd. This transaction will help the company raise funding for the current deal.
“The combined company’s diversified product offering will serve the passenger car, light & heavy truck, farm and off-the-road vehicle segments. Together, we will have a significant presence in each of the three largest automotive markets in the world, namely the US, Europe and China,” said Neeraj Kanwar, vice-chairman and managing director of Apollo.
Morgan Stanley & Co. LLC and Deutsche Bank Securities, Inc. served as the financial advisors and investment firm Greater Pacific Capital acted as strategic and financial advisor to Apollo.
Standard Chartered is the sole provider of transaction financing at Apollo Tyres level and is also the structuring advisor. Morgan Stanley Senior Funding, Inc., Deutsche Bank Securities Inc., Standard Chartered and Goldman Sachs Bank, USA, were joint lead arrangers, providing committed funding to Apollo’s acquisition subsidiary.
Sullivan & Cromwell LLP and Amarchand & Mangaldas & Suresh A Shroff & Co served as legal advisors to Apollo. BofA Merrill Lynch served as the financial advisor and Jones Day served as legal advisor to Cooper.
(Edited by Sanghamitra Mandal)