Shares in Apollo Tyres Ltd. plunged by up to 21% the day the company announced its purchase of Cooper Tire & Rubber Co.
According to local news sources, it has been more than 20 years since Apollo’s share price fell this much. The negative sentiment is likely to related to the price Apollo has agreed to pay for Cooper, which at $35 a share is far higher than the company’s June 11 closing price of $24.56 and potential price tags of around $25 that were mooted around the time rumors of the deal emerged in October 2012.
At that time, market observers suggest that even the circa $25 dollar levels were on the high end of the spectrum. Following confirmation of the deal, the same sources applauded Cooper CEO and chairman Roy Armes’ successful negotiation of the $35 price.
However, while some in the Indian tire industry lauded the company’s ability to close the largest outbound automotive transaction in Indian history (the next largest is Tata Motors’ Jaguar Land Rover purchase for $2.3 billion in 2008), some market analysts warned of the inherent risks
“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 on June 12. (Tyres & Accessories)
