With Cooper Tire acquisition, Apollo eyes lucrative markets in N America, Europe

New Delhi, June 14, 2013: Apollo Tyres’ $ 2.5 billion (Rs 14,500 crore) acquisition of the profitable business of the US-based Cooper Tire & Rubber Co. will open up the deep-profit pool markets of the Western world – North America and Europe – with opportunities to tap its advanced technologies, infrastructure and big margins for Apollo, said Neeraj Kanwar, vice-chairman and managing director at a press meet today after the announcement of the acquisition on June 12. The company, he said, will also be able leverage Cooper Tire’s low-cost manufacturing sites in Serbia, China, South Africa and Mexico to make tyres. Fifty percent of the combined company’s manufacturing will now be undertaken in low-cost countries. About 55 percent of Apollo’s revenue will come from Western markets and about 45 percent from emerging markets.

Apollo Tyres is expected to derive rate combination benefits of $ 80-120 million (Rs 462-693 crore) per annum at the EBITDA level over the next three years with anticipated one-time expenses of $40 million (Rs 231 crore) over the next 2 years.

The company had a plan to reach a turnover of $ 7.5 billion (Rs 43,342 crore) and become one of the world’s Top 10 tyre makers but has already achieved revenues of $ 6.6 billion (Rs 38,141 crore) with the Cooper acquisition. So is a rejig of its growth strategy due now? “Obviously our strategy will be rejigged. Let us absorb this, then we will see what is our future strategy,” Kanwar told Autocar Professional.

With its low-cost manufacturing, Cooper is very important for Apollo Tyres as China, one of its bases, is slated to become the world’s No.1 automotive market by 2020 and along with India is one of the fastest emerging markets globally.

Kanwar said both the North America and China markets are very important for any tyre major. Till now, Cooper Tire has been in the replacement market for passenger cars, SUVs and light trucks and now has only just begun moving towards OEs with its recent association with Ford.

Ford is an important customer for Apollo as well and Apollo sees potential for cross-selling truck and bus radials in North America and China, especially Apollo’s premium range of truck tyres. At present, Cooper sources medium-range truck Roadmaster tyres from China.

“Together, we will have a significant presence in each of the three largest automotive markets in the world -- USA, Europe and China,” Kanwar added. Apollo Tyres had earlier said it plans to launch both the Vredestein and Cooper brands in India soon.

Automotive News has reported that Apollo Tyres’s offer to buy Cooper Tire & Rubber Co was not the first time it tried to acquire the U.S. tyre producer. It had approached Cooper last year also with an offer that the US company did not find attractive enough, the magazine said quoting the chairman of Cooper Tire, Roy Armes.

About 70 percent of Cooper’s revenue comes from North America ($3.1 billion) and the balance $ 1.3 billion from China. Apollo Tyres has used two types of debt to fund the $ 2.5 billion transaction. At the Apollo India level, a $450 million new debt and an existing debt of $ 354 million (March 2013) has been leveraged. There will be a net debt of $ 800 million post-transaction. The cost of the new debt will be around 6-7 percent per annum with additional 5-6 percent for FX hedge. There is an expected pre-tax annual interest payment of around $100 million. At the overseas level, the $2.5 billion transaction is made up of $ 2.1 billion new debt and $ 0.4 billion existing debt.

SHOBHA MATHUR

Photograph (L-R): Neeraj Kanwar, vice-chairman & MD, Onkar S Kanwar, chairman, and Sunam Sarkar, chief financial officer, Apollo Tyres.