Apollo Tyres Bounces Back On Bourses After Cooper Split

On Monday, December 30, 2013, US-based Cooper Tire & Rubber Co. prematurely terminated its merger agreement with Apollo Tyres (ATL). Following this, Apollo’s stock gained over 11% and hit its all-time high of Rs 116.55 on the last trading day of 2013.

In June 2013, ATL had announced the acquisition of Cooper Tire (approximately 2.5x its size) for a consideration of USD 2.5 billion (about Rs 15470 crore) to be funded entirely through debt. Apollo Tyres faced troubles in financing the deal due to the increased liability and also required a price reduction from Cooper Tire. In view of the fact that ATL was planning to finance the entire deal worth USD 2.5 billion through debt, investors were bothered that the takeover would lead to an increase in debt levels and stretch the company’s balance sheet.

On its part, Cooper Tire said that it was walking out of the deal following indications that the Indian tyre maker may not be able to finance the takeover.

We had mentioned in a previous article that termination of this deal is in favour of the shareholders of ATL and it will be good for the company to walk away from the deal. Of course, another uncertainty now is regarding the break-up fee of USD 112 million that ATL will need to cough up. However, we believe that ATL has many other compelling growth opportunities around the world as the company is performing well, as evident from its strong topline and bottomline in the current quarter.