Modi Rubber Ltd is selling its tyre company housed under a wholly owned unit Modi Tyres Co Ltd to the world’s fourth largest tyre maker Continental Group for an undisclosed amount.
Modi Tyres already had a tie up to make and sells tyres for the German partner but the deal will not give any major headstart to Continental to scale up its India business. Modi Tyres had become a bit player in the local market and financial troubles of its parent, that became financially sick less than a decade ago, had restricted its growth.
Although Continental would also face competition from its global competitors including Bridgestone, Goodyear and Michelin that is in the process of setting up a large greenfield unit in India, the biggest challenge would be to take on local tyremakers such as Apollo, MRF, JK Tyres and Ceat who dominate the Indian market.
Modi Rubber said the deal depends on fulfillment of several conditions contained in the agreements. Modi Tyres operations are located at Modinagar and it had few years ago revived its technical collaboration with Continental to make truck and bus cross-ply tyres.
Modi Rubber scrip shot up 10% to hit the upper circuit on Monday, valuing the company at Rs 188 crore.
The transaction will count as another deal where an acquirer is snapping the core business of a listed firm. Earlier media reports had suggested Continental AG is in talks to buy a majority stake in the public listed Modi Rubber Ltd and was waiting for Modi Rubber to clean its books before picking a stake.
Purchase of Modi Tyres would allow Continental to circumvent the open offer to acquire shares from minority shareholders of Modi Rubber. Promoters own 86% in Modi Rubber with the rest held by corporate bodies and public.