Apollo Tyres enters U.S. market through Cooper Tire

Indian firm pays $2.5 billion for No. 2 U.S. tire maker.

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By R. Chandrasekaran

CHENNAI: Apollo Tyres Limited, one of India’s biggest tire manufacturers, has struck a deal with the Cooper Tire and Rubber Co., the second biggest American tire firm, to buy it for $2.5 billion. The acquisition will give the Indian tire maker an access into the U.S. market, the second largest in the world.

The Indian company will be paying $35 a share to Cooper Tire shareholders, which is listed in the New York Stock Exchange. It represents a premium of 43 percent to Tuesday’s closing price.

Speaking about the acquisition, Apollo Tyres chairman Onkar S. Kanwar described the deal as a game changer for the company.

By acquiring Cooper Tire, Apollo will look to enter markets such as Africa, Latin America and China, which is the biggest market for buses and trucks. The company will now own brands such as Cooper, Avon, Mickey Thompson, Roadmaster, Mastercraft, Starfire and Chengsan.

The additional markets and the brands are expected to make Apollo the seventh biggest global tire manufacturer. Apollo’s turnover is predicted to jump about 175 percent to $6.6 billion from $2.4 billion in the fiscal year ended March.

Currently, Apollo is the leading brand in India with truck and bus radials, enjoying a healthy market share of 32 percent. Its passenger vehicle, light commercial vehicles and agricultural product sectors generate a market share of 18 percent, 24 percent and 20 percent, respectively.

The acquisition of Cooper Tire is estimated to more than double its capacity to 3,500 tones from 1,500 tones. Similarly, staff strength will also nearly double to 30,000 from 16,000. Apollo Tyres has six factories. Cooper’s eight factories are spread across the United States, China, Mexico, Serbia and the U.K.

“They have a good balance of low-cost sourcing and niche products, which will be a big plus for us,” Kanwar said. The company expects to add Rs.4.65 billion to Rs.4.7 billion of value every year at the operating margin scale. The full benefits of the ongoing value addition could be seen after three years of operating scale, benefits from sourcing, technology, product optimization and manufacturing improvements.

The deal is one of the biggest for an Indian company to strike with a foreign company. The last major acquisition was by the Tata Group, which acquired Jaguar Land Rover from Ford and the British Corus Steel about five years ago.

Apollo Tyre is planning to de-list Cooper Tire shares once the deal is closed, which is expected before March 2014. Interestingly, the company had agreed to sell most of its units in South Africa to Sumitomo Rubber Industries for $60 million last month.

Apollo’s focus on the U.S. market has come on the back of a nearly 4-year upside in auto sales due to replacement of age-old vehicles. “We expect the U.S. economy to recover faster and grow at a better pace than rest of the developed countries. We will also get into China, which is one of the largest and most exciting markets,” Kanwar said.

Whatever be the scale of addition for Apollo Tyres, the deal indicates that more Indian companies are willing to venture into the global market to make an impression and extend their foot print. It also signals that the days of only foreign companies buying Indian companies have changed.

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