Deal snapshot and relative valuation.

1. Presented By:
Ankit Kumar Gupta
APOLLO’S ACQUISITION OF COOPER
CASE A

2. NATURE OF THE INDUSTRY
 Tyre Industry is highly raw-material intensive. Raw materials cost
accounts for approx. 63% of tyre industry turnover and 72% of
production cost.
 The industry is a major consumer of the domestic rubber market.
Natural rubber constitutes 80% while synthetic rubber constitutes
only 20% of the material content in Indian tyres
 62% of total Natural Rubber consumption is by the Tyre Sector,
balance by rubber based non-tyre industries. Interestingly, world-
wide, the proportion of natural to synthetic rubber in tyres is 30:70
 Total weight of raw-materials consumed by tyre industry – 15.50
Lakh M.T.
 Total Cost of Raw Materials consumed by tyre industry –
Rs.16,000 Crores

3. APOLLO TYRES – COOPER TIRE DEAL
 Apollo Tyres snapped up the Findlay, Ohio-based Cooper
Tire & Rubber for a staggering $2.5 billion.
 It’s the largest deal in India’s automotive and tyre industry.
 The $2.5-billion tag is nearly three times what Apollo is
worth and will be paid entirely by debt, raised on Cooper’s
profitability prospects. In mergers and acquisitions (M&A)
parlance, such shopping is called leveraged buyout (LBO).
 The deal involves taking debt at two levels — $450 million
on the books of Apollo’s Mauritius-based subsidiary and $2.1
billion between Cooper ($1.9 billion, from the US bond
market) and Vredestein ($200 million, an asset-backed loan).

4. DEAL STRUCTURE

5. BRIEF SNAPSHOT OF DEAL
Acquirers Apollo Mauritius and its Subsidiary: Dutch
Holdco and Merger Subsidiary
Seller Cooper
Acquisition Acquisition by means of merger between Cooper
and Merger Subsidiary
Acquisition Price US$ 35 per share
Total
Consideration
US$ 2.5 billion

6. MODE OF ACQUISITION
 Agreement and Plan of Merger entered into between Apollo Mauritius,
Dutch Holdco, Merger Subsidiary and Cooper for the merger of the
Merger Subsidiary with and into Cooper
 As a result of the Merger, the separate corporate existence of the
Merger Subsidiary shall cease Cooper will continue as the surviving
corporation post- Merger, as an indirect, wholly owned subsidiary of
Apollo
 Each share of Cooper’s common stock issued and outstanding
immediately prior to the effective time of the Merger was to be
converted into the right to receive US$ 35 in cash, without interest

7. FINANCIAL CONSIDERATION
 Apollo signed an agreement to acquire Cooper for a cash consideration of
US$ 2.5 billion
 Deal would create the world’s seventh ranked tyre company
 Synergy - Management expects potential savings of $80‐120mn which
would accrue over a period of three years
 Apollo agreed to acquire Cooper for ~US$35 per share, a hefty premium of
40% on Cooper’s 30-day volume-weighted average stock price
 Deal was unreasonably overpriced given the various market indicia of
Cooper and the global economic conditions
 Apollo justified the deal as a combination of large market access, a well-
established brand and cost-competitive plants

8. MODE OF FUNDING
 Deal was completely debt-financed
 Standard Chartered sole provider of Deal- US$ 450 M. at the
Apollo Mauritius level to be serviced from the cash flows of
Apollo
 US$ 450 M. to be transferred via equity to Dutch Holdco.
 Morgan Stanley, Deutsche Bank, Standard Chartered Bank and
Goldman Sachs Bank USA to provide committed funding of
US$ 2.375 B. to the Merged Subsidiary consisted of a US$
1.875 B bridge facility and a US$ 500 M revolving credit
facility
 The bridge loan to be refinanced by the issue of high-yield junk
bonds to the tune of US$ 1.9 billion with tenure of 7 to 8 years
and coupon in the range of 6.75% to 9.5%
 Bullet repayment on the bonds of US$ 1.9 billion would be at
the end of the tenure of the bonds.

10. KEY TAKEAWAYS
 Combined organization will be world’s seventh largest tire
company with sales of $6.6B.
 More options for customers; growth opportunities for
employees.
 Apollo to retain and grow existing Cooper facilities
maintained.
 Management continuity.

11. What is Cooper Tyres worth to Apollo Tyres?
Would you recommend the acquisition?

12.  The deal provided significant growth opportunities to
Apollo as it would have been able to access profitable
developed markets and high-growth emerging markets with
its total addressable market increasing by three times.
 The merger was seen as protection from the risk of business
in a single geography.

13. RELATIVE VALUATION
COOPER TIRE & RUBBER CO.
 EV/Sales - 0.5
 EV/EBITDA - 4.7
 P/E - 12.1
 P/Cash flow - 5.2
 P/B - 1.8
 Dividend Yield - 1.7%

14. FUTURE ASPECTS OF SYNERGY
 The current deal may not reap benefits as quickly and analysts fear
the first two or three years may be exceptionally tough when the
synergies won’t have kicked in but interest payments would have.
 Cooper has over 14,000 employees across the world and Apollo has
no intention of retrenching staff at the American company. That
means the combined strength of Apollo-Cooper will be 30,000.
 Deal increases Apollo’s capacity from 26 million to 80 million a
year.
 Apollo plans to introduce its truck tyres in the US market using
Cooper’s dealership network and also sell Cooper’s passenger
vehicle tyres in the Indian replacement market.

15. THANK YOU