Birla Tyres plant acquisition talks ‘speculative’, says Kesoram Industries

An article published by Indian financial daily The Economic Times, which claims MRF Tyres is in advanced discussions with Kesoram Industries over the purchase of its tyre making facility in Laksar, Uttrakhand state, has been labelled “purely speculative in content” by Kesoram Industries. In a letter sent to the Bombay Stock Exchange on 20 January, company secretary Gautam Ganguli stated that the news of negotiations was “based entirely on speculation and conjecture.” Kesoram sent a similar letter to the newspaper a day earlier.

Based on information from unnamed, multiple sources, The Economic Times reports that MRF Tyres seeks to acquire Kesoram Industries’ main tyre unit for “a value that’s far higher than the market capitalisation of the entire diversified Birla conglomerate.” The publication says the deal would strengthen MRF’s position within India’s commercial vehicle market, where it is the second largest player behind Apollo Tyres. For Kesoram Industries, the transaction would help reduce its growing debt, which at the end of September 2014 had reached Rs 44.25 billion (£472.9 million), and free up working capital. Kesoram’s tyre business accounted for almost half of the conglomerate’s EBITDA in the 2014 financial year.

Sources utilised by The Economic Times claim that Kesoram Industries seeks a mimimum enterprise valuation of Rs 22 billion (£235.1 million) for the factory, a price more than 75 per cent higher than Birla Tyres’ market capitalisation. MRF has allegedly offered between Rs 16 billion and Rs 18 billion (between £171.0 million and £192.4 million). Most sources the newsaper spoke with claim a deal will be made by the end of the month, and one shared that a competing offer of Rs 35 billion (£374.1 million) for the entire Birla Tyres business and Birla brand name had been made by a Singapore-based trading company, however this offer was turned down.

While Kesoram Industries has chided The Economic Times for publishing an article based on speculation, neither the letter it sent to the financial daily nor its letter to the BSE denied that acquisition negotiations have taken place. Should The Economic Times’ sources prove credible, we will hear more on the matter from Kesoram and MRF in the not too distant future.