Shares of India’s Apollo Tyres Ltd plunged as much as 20 percent yesterday, a day after it announced a US$2.5 billion deal to buy out US-based Cooper Tire & Rubber Co.
Apollo stocks fell to a low of 73.6 rupees in morning trade on concerns that the all-cash deal would put a strain on the Indian firm’s balance sheet.
“Apollo is buying a firm almost three times its size, in an uncertain global financial market,” Prabhudas Lilladher analyst Surjit Arora said.
Apollo’s acquisition of Cooper — one of the largest by an Indian auto company — will create the world’s seventh-largest tyre maker, the two firms said while announcing the deal.
Apollo plans to fund the acquisition by raising new debt of US$2.5 billion, but analysts expressed concerns over raising so much.
“Apollo might have bitten more than it could chew,” Arora said.
The buyout is taking place at a time when Cooper’s pace of growth in the tyre business has been slowing in recent quarters, Arora said.
The new entity will have a presence across the US, Europe, China, India and Latin America, totaling US$6.6 billion in sales.
The deal is larger than the Tata group’s acquisition of Jaguar-Land Rover brands from Ford in 2008 for US$2.3 billion.
Apollo, based in the northern Indian city of Gurgaon, is to pay Cooper shareholders US$35 a share, a 43 percent premium on Tuesday’s closing price of US$24.56.
Apollo Tyres chairman Onkar Kanwar called the transaction “transformational,” providing an unprecedented opportunity to tap overseas markets.
Their tire brands include Apollo, Cooper, Roadmaster and Vredestein.
The deal gives Apollo access to markets in the US and China while Cooper gets a premium price per share and some assurances that its domestic operations will not be gutted.
Cooper chief executive officer Roy Armes said the two companies are a good strategic fit because each is in different markets.
“The lack of overlap is where the opportunities really are,” Armes said in an interview.
The deal will give Cooper’s customers access to new products such as off-road and farm tires, which could eventually be made at one of the company’s North American plants, he said.
“It won’t make sense to import everything from India,” Armes said.
Apollo has made a “pretty strong commitment” not to shut down plants in Findlay in northwest Ohio; Tupelo, Mississippi; and Texarkana, Arkansas, Armes said.
It also plans to honor the terms of labor contracts currently in place and generally maintain pay and benefit levels for non-union employees.