SHARES of India’s Apollo Tyres plunged as much as 20 per cent on Thursday (June 13), a day after it announced a $2.5bn (£1m) deal to buy out US-based Cooper Tire & Rubber.
Apollo stocks fell to a low of Rs73.6 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,” said Surjit Arora, analyst with Prabhudas Lilladher.
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 $2.5bn (£1m), 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 United States, Europe, China, India and Latin America, totalling $6.6bn (£4bn) in sales.
The deal is larger than the Tata group’s acquisition of Jaguar-Land Rover brands from Ford in 2008 for $2.3bn (£1m).
Apollo, based in the northern Indian city of Gurgaon, is to pay Cooper shareholders $35 (£22.35) a share, a 43 per cent premium on Tuesday’s (June 11) closing price of $24.56 (£15.69).
Apollo Tyres chairman Onkar Kanwar called the transaction “transformational”, providing an unprecedented opportunity to tap overseas markets.
Apollo produces Apollo and Vredestein brands while Cooper brands include Cooper, Mastercraft, Starfire, Chengshan, Roadmaster and Avon.
The deal is set to be completed before the end of the year.
