Apollo to Pay $2.5B for Cooper Tire, But Price Multiple is Less Than Certain Comparable Sector Deals

By on June 13, 2013

Apollo Tyres Ltd. (APTY) offered $35 per share to acquire Cooper Tire & Rubber Co. (CTB) in a debt-financed deal totaling approximately $2.5 billion, the biggest takeover of an auto-parts manufacturer since 2007.

Cooper Tire shares advanced more than 40% on the news, but the $35 per share price offered by Apollo Tyre, an EBITDA multiple of 4.4,  reflects a lower EBITDA multiple than seen in other recent deals in the sector.

The acquisition will provide “scale and geographical presence including the American and European market, that’s a mature market, and India and China that’s a growing market,” Neeraj Kanwar, vice chairman of Apollo Tyres, told reporters at a briefing yesterday in Gurgaon.

“These kinds of cross-border transactions, suppliers from different countries investing in each other’s markets, is always good for the industry,” Sanjeev Varma, managing director of Stellar Alliance Group LLC, a Troy, Michigan-based automotive industry consultant, said in an interview yesterday.

While certain experts see the deal as favorable for the auto parts industry, some equity analysts have expressed concern.  “We see this as a risky acquisition as the management would have little room for error given the high leverage, very little synergy benefits and the poor demand environment currently,” Kaushal Maroo and Siddhartha Bera, analysts at Emkay Global Financial Services Ltd., wrote in a report yesterday after the deal was announced.

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