When it comes to takeover talk, the question is – who’s in play?

Now the dust has settled from the first suggestions that Apollo Tyres was preparing to bid for Cooper Tire, the rumour mill has slowed considerably. There are those that are saying there is no smoke without fire when it comes to the reports published in the Indian and then global press; and there are those that believe it was all a carefully orchestrated publicity manoeuvre. Whatever the truth turns out to be, the interest surrounding this story is a reflection of the facts that the global market is ripe for consolidation and that there are a lot of ambitious tyre companies in and around the top 20 aiming to make it into the top 10.

If there is any truth to the story, the attraction for Apollo is clear. Buying Cooper would open the door not only to the US, but also NAFTA countries via the company’s operations in Mexico; and China via Cooper Chengshan, a profit centre of the American manufacturer. There are also suggestions of synergies in the 4×4 segment, which could potentially give a post-merger company a unique selling point in the brand-saturated emerging markets. But this path would also be fraught with difficulty.

Strategic questions

First there is the question of the share price. At the time of writing this was floating around US$22, which is not cheap. So, in order to please current Cooper shareholders, an offer would probably have to be north of this. All this means that Apollo would have to have very deep pockets quite apart from whether it would be a hostile or “friendly” takeover. That said, Apollo’s aggressive growth strategy to date – including the purchase of Dunlop South Africa and Vredestein – demonstrates that the company is indeed ambitious. There is also the fact that Apollo and Cooper have worked together on large-scale projects before and therefore – whether or not these discussions proved to be fruitful – there is a likely to be a kind of rapport between the two firms at the executive level, which will help if they want to avoid a hostile takeover.

Then there is the brand question. Apollo’s purchase of Vredestein and the Maloya brand that came with it broadened the India firm’s product portfolio, which also includes Dunlop in South Africa plus Regal and Kaizen in some markets. The fact that Apollo is being marketed above Vredestein is still be assimilated in Europe. So adding Cooper’s flag brand as well as Avon, which remains strong in markets like the UK plus other brands such as Mastercraft, Austone and Dean will only complicate things further. Then there is the question of all the private brands that Cooper contract produces. Sources suggest that these represent a very significant chunk of total output in the states, which means that buying Cooper is no guarantee of buying market share. With many of these disparate private brand customers being steeped in the North American milieu there is the potential that Indian/US culture clash will be another obstacle to overcome.

Mention personnel and the first question that springs to mind is: what does all this mean for Cooper’s Melksham operation? Already one of the smallest continuing tyre production facilities on the map, it is difficult to see how it would fit into the strategy of a potential buyer. In Apollo’s case, prior to the Vredestein takeover, they may have wanted a European technical centre and buying Vredestein brought with it the kind of European experience, know-how and production technology will have wanted. Granted Melksham has specialised in producing motorsport and high quality motorbike tyres, but would Apollo want Melksham as well as Vredestein?

Only the passage of time will tell us whether the jungle drums were beating out words or truth or whether the smoke-signals are in fact a smoke screen. However if as some have suggested Cooper is the only top ten manufacturer currently “in play” it could mean that someone else will come along with the right offer at some point. And this means timing will be an important part of any potential takeover strategy. If Apollo weren’t planning to make a move, could it be a Chinese company or someone else doing the bidding next time round? And if there could be a different bidder, there could also be a different target. Which brings us back to the original question: who’s in play?