Modi Rubber Ltd has sold its tyre business housed under a wholly owned unit Modi Tyres Co Ltd to the world’s fourth largest tyremaker Continental Group for Rs 135 crore(~$ 30 million) including a sum of Rs 17.22 crore as a non compete fee net of withholding tax.
The company disclosed on Monday it has completed the sale of its entire holding on July 15. The company’s scrip rose 4.9 per cent to hit the upper circuit for the day at Rs 63.2 a share at mid day trading at BSE.
Purchase of Modi Tyres would allow Continental to circumvent the open offer to acquire shares from minority shareholders of Modi Rubber. Promoters own 86 per cent in Modi Rubber with the rest held by corporate bodies and public.
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.
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.
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 few years 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.