The Cooper/Apollo gossip was right

When the rumour mill began grinding in the last quarter of 2012, Apollo did little to counter speculation that it was preparing to buy US tyre-maker Cooper Tire. With the gift of hindsight it seems the gossip was exactly right. Back then, as Tyres & Accessories as well as other observers suggested there was a strong rationale for such a move, but with no-one breaking ranks it was difficult to be more definite.

Now, following confirmation of the move, the purchase is being presented as a strategic merger. But it is also a complex manoeuvre. Apollo, founded in 1972, has an increasing reputation for fast development and particularly with regards to its Apollo and Vredestein brands, which have been able to attain OE contracts with leading carmakers and tuners. Cooper, the 11th-largest tyre company in the world by revenue, was founded in 1914 and supplies numerous brands around the world such as Cooper, Mastercraft, Starfire, Chengshan, Roadmaster and Avon, which is particularly popular in the UK.

Questions, questions

Important questions that T&A first raised in October remain. What does all this mean for Cooper’s Melksham operation? How does this fit into the strategy of a potential buyer? Prior to the Vredestein takeover, Apollo may have wanted a European technical centre and buying Vredestein brought with it the kind of European experience, know-how and production technology they will have wanted – what does this mean for Cooper’s European Technical Centre in Melksham? 

Then there is the brand question. When it bought Vredestein, Apollo integrated Vredestein and Maloya into its brand portfolio. Cooper brings with it half a dozen more brands and a host of private brands. As we reported back in October, these are believed to represent a very significant chunk of total output in the States, which means that buying Cooper is no guarantee of buying market share. Again, it is a complex operation to work through.

What we do know is that the combined business is expected to deliver “value creation benefits” of roughly US$80-120 million per annum at the EBITDA level, to be fully achieved after three years. The company reports that these will be derived from operating scale, sourcing benefits, technology, product optimisation, and manufacturing improvements. What this means in practice isn’t yet clear. And, as you would expect, there is already some degree of surprise and nervousness within the workforce.

For his part Neeraj Kanwar, vice chairman and managing director, Apollo Tyres Ltd, said: “The combined company’s diversified product offering will serve the passenger car, light and heavy truck, farm, and off-the-road vehicle segments. Our extended global reach will create opportunities to provide our customers and distributors around the world with increased access to the quality tyres they have come to expect from each of our respective brands. Together, we will have a significant presence in each of the three largest automotive markets in the world, namely the US, Europe and China.” 

Continuing, Neeraj Kanwar sought to reassure staff of both companies: “Importantly, both Apollo and Cooper have built strong reputations on the strength of their people, and this transaction will maintain the networks and workforces in each organization’s respective regions, while creating new opportunities in others. We are excited by the possibilities created by our partnership and look forward to welcoming Cooper’s employees to the Apollo family.”   

The transaction is expected to close within the second half of 2013. Following the close, Cooper will become a privately held company and its common stock will no longer be traded on the New York Stock Exchange. It is expected that Cooper will continue to be led by members of its current management team and will continue to operate out of its facilities located around the world. Apollo’s statement reports that Cooper will continue to recognize the labour unions and “honour the terms of collective bargaining agreements presently in effect while generally maintaining compensation and benefit levels for non-union employees.”

That said, it seems Apollo’s HQ in the Gurgaon suburb of Delhi will now be the control centre of a truly global operation.