* Deal to create world's 7th largest tire maker
* Offer of $35/share represents 43 pct premium to Cooper's
* Apollo to raise $2.5 billion of new debt to fund the deal
(Adds analyst comment, details)
By Bijoy Anandoth Koyitty and Aradhana Aravindan
June 12 India's Apollo Tyres Ltd
agreed to buy U.S.-based Cooper Tire & Rubber Co for
about $2.5 billion in a deal that would make it the world's
seventh-largest tire maker and reduce its dependence on a
slowing Indian auto market.
The acquisition of Cooper -- the second biggest U.S. tire
maker and No. 11 globally with annual sales of $4.2 billion --
will give Apollo access to the U.S. market for replacement tires
for cars and light and medium trucks, Cooper's main business.
Apollo, which currently gets two-thirds of its revenue from
India, will pay $35 per share, representing a premium of about
43 percent to Cooper's Tuesday close.
"It is very important for us to expand our horizons.
Especially in the long run, the U.S. market is going to look up
... ," Apollo Chairman Onkar Kanwar said on a conference call on
The deal is the latest in a string of big overseas
acquisitions by Indian companies in recent years, including Tata
Motors Ltd's $2.3 billion purchase of Jaguar Land
Rover and mobile operator Bharti Airtel Ltd's $9
billion takeover of the African operations of Kuwait's Zain.
It is also another example of an Asian company buying a
well-known U.S. firm, coming just two weeks after China's
Shuanghui Group agreed to buy Smithfield Foods for $5
"The U.S. is an untapped market for Apollo. And the U.S.
market is obviously big, and among the developed markets, it is
the only one that is growing significantly," said Nishant Vass,
auto analyst, at Mumbai-based brokerage ICICIdirect.
Indian car sales fell 7 percent in the financial year that
ended in March, the first annual fall in a decade, while sales
in Europe, Apollo's second-largest market, are at a 20-year low.
But auto sales are one of the bright spots for the U.S.
economy. Sales in the second biggest auto market after China
rose more than expected in May as construction workers and oil
drillers bought more pickup trucks, and they are expected to
remain strong for the rest of the year.
INDUSTRY CONSOLIDATION UNLIKELY
The deal values Cooper at 4.4 times its EBITDA (earnings
before interest, tax, depreciation and amortization), which
Apollo said was within the range of 3.5 to 6 times multiples
seen in recent transactions in the sector.
Cooper's main investors are institutions, topped by
BlackRock Institutional Trust Co and Vanguard Group Inc with
about 7 percent stake each.
Cooper shares were up 40 percent at $34.46, just below the
offer price, in early afternoon trading on the New York Stock
Shares of Goodyear Tire & Rubber Co, the biggest U.S.
tire maker, rose on the news but an analyst said it was unlikely
the Cooper sale would trigger more deals in the industry.
"... The top of the market is already consolidated," Morgan
Stanley analyst Ravi Shanker said on a note to clients.
Findlay, Ohio-based Cooper employs nearly 13,000 people
around the world. Apart from North America, it has manufacturing
facilities in England, Serbia, Mexico and China.
Kanwar has expanded Apollo, which had revenue of $2.5
billion in 2012, after taking control of the company in 2002,
following a prolonged public spat with his father, who founded
the company in 1976.
His previous acquisitions include South Africa-based Dunlop
Tyres International Ltd in 2006 and Dutch tire-maker Vredestein
Tires in 2009.
Reuters and others reported in October that Apollo and
Cooper were in talks for Apollo to take a stake in the company.
Apollo said it would raise $2.5 billion in new debt to fund
the deal, of which $2.1 billion would be through the issue of
dollar bonds with a tenure of seven to eight years.
Cooper, whose roots go back a century, is known for brands
including Cooper, Avon, Mastercraft, Dean and Starfire.
Apollo said it would launch some Cooper brands in the Indian
market, but did not give a specific timeframe.
The company said it plans to keep Cooper's management.
Apollo shares closed up 2.7 percent at 91.95 rupees in
Mumbai trading ahead of the announcement.
Morgan Stanley & Co, Deutsche Bank Securities and investment
firm Greater Pacific Capital advised Apollo on the deal. Bank of
America Merrill Lynch was financial adviser and Jones Day was
legal adviser to Cooper.
(Editing by Saumyadeb Chakrabarty)