India-based Apollo Tyres is in talks to acquire US-based Cooper Tire, reports Economic Times. The report, which cited two people who are said to have direct knowledge of the matter, said that the Indian company may acquire a controlling stake in one of the largest US tyre companies and the deal could be in the range of USD600m and USD800m. The companies have refused to comment on the report.
Corroborating the Economics Times article, Reuters reported that Apollo Tyres has hired Standard Chartered and HSBC for a secondary share sale in the Indian market to raise up to USD150m. The Indian company is also in talks with Standard Chartered for financing. The fresh borrowing and proceeds from the share sale that is expected in mid-November is likely to be utilised to finance the deal.
Significance: Apollo Tyres harbours ambitions of becoming one of the Top 10 tyre makers globally by 2016. The company’s global ambitions could well be achieved with this acquisition. However, the company’s debt situation is not particularly conducive. An IFCI Financial Services report dated 7 September said that Apollo Tyres already has debts of around INR25.5bn (USD483.3m) after acquiring Vredestein in East Europe in 2006 and Dunlop in South Africa in 2009. But, the Indian tyremaker has recently got approval from its Board of Directors to raise USD150m through placement of shares to qualified institutional buyers (QIB) and has also agreed to increase the limit of foreign institutional investors (FII) to 40% from the present 30% level of paid up capital. The company has not disclosed how it plans to utilise the funds that would be raised through QIBs. The Press Trust of India (PTI) had reported earlier this month that the Indian tyremaker's investment plans include setting up greenfield plants in Brazil, Eastern Europe and Asia. Also, Apollo Tyres already has some familiarity with Cooper Tire as Dunlop South Africa was the sole distributor of Cooper Tire products in the region. Apollo reported sales of INR121.5bn (USD2.3bn, 31 March 2012) for the fiscal year (FY) 2011-12 with net profit of INR4.1bn (USD78.7m). The company also reported a strong growth in the first quarter of FY2013-13 with sales up by 12% to INR31.6bn (USD562m, 30 June 2012) and net profit amounting to INR1.38bn (USD24.5m) against INR770m (USD16.9m, 30 June 2011).
