Skip to main content
Sister Publication Links
  • Rubber & Plastics News
Subscribe
  • My Account
  • LogIn
  • News
  • Technology Focus
    • Features
    • Technical Papers
    • Analysis: Rubber mixing plants of the future
      Analysis: US probes dumping by ESBR suppliers
      Opinion: Tire labels stuck in a rut
      Analysis: NR pricing takes one step forward, two steps back
    • White paper: Role of tire innerliners in improving 'in-use rolling resistance'
      White paper: Why tire air retention matters now more than ever
      Nippon Soda: Use of 1,2-polybutadiene in CSM rubber applications
      Elastomers for Sustainability Top 10
  • Events
    • ERJ Events
    • ERJ Livestreams & Webinars
    • Industry Events
    • Journey to Automation Awards 2020
      Sustainability: Top 10 E4S projects table
  • Maps & Reports
  • People
  • Directory
  • Digital Edition
  • Brainiac
MENU
Breadcrumb
  1. Home
  2. News
June 18, 2013 12:00 AM

Analysts call Apollo's purchase of Cooper 'risky'

ERJ Staff
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print

    ERJ staff report (BC)

    Akron, Ohio – Financial analysts who follow Apollo Tyres Ltd. are calling the Indian company’s $2.5 billion (€3.3 billion) bid to buy Cooper Tire & Rubber Co. “overambitious” and “risky,” reports Bruce Davis of Rubber & Plastics News, based on the amount of debt Apollo will incur.

    Reflecting the uneasiness among Apollo shareholders, the Indian company’s stock dropped 25 percent in value on 13 June, the day the deal was announced.

    “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,” wrote the analysts at Emkay Global Financial Services Ltd. in Mumbai, India.

    According to Emkay and LKP Securities of Mumbai, Apollo – which is half the size of Cooper intends to raise the funds for the purchase by issuing bonds through a Dutch holding company involving its Apollo Vredestein business in Europe and Cooper and backed by the companies’ assets.

    This venture would raise between $1.9 billion (€2.5 billion) and $2.1 billion (€2.8 billion), the financial service firms said, while Apollo will raise the rest via unsecured debt. LKP said in its analysis it expects Apollo to sell bonds in the U.S. market with a likely seven- to eight-year maturity and a funding cost of approximately 10 percent.

    Apollo has yet to disclose details of how it intends to raise the capital needed to fund the deal, saying only it has the backing of Standard Chartered P.L.C., Morgan Stanley Senior Funding Inc., Deutsche Bank Securities Inc. and Goldman Sachs Bank USA.

    When asked about the financing for the deal, Cooper Tire Chairman, CEO and President Roy Armes said the board expressed its confidence after looking at the companies backing the deal.

    Analysts from LKP Securities called Apollo’s move “overambitious” considering the level of debt required and the global market situation.

    The two securities firms estimate the new company’s enterprise value-to-EBITDA ratio would settle in at roughly 3.8 to 4.4, depending on the earnings estimates. By contrast, LKP puts Apollo’s EV/EBITDA ratio for fiscal 2012 at 6.2.

    EV/EBITDA is a valuation multiple used regularly by the financial community to measure the value of a company. EV is defined by various sources as the estimated cost of acquiring an enterprise’s core cash flow.

    A lower EV/EBITDA ratio relative to a given company’s peers indicates a firm that’s undervalued.

    Both securities houses point to the firms’ contention that the merger will generate up to $120m (€160m) in synergy savings a year and the combined company will enjoy above-average growth by opening new markets and exploring cross-market sales opportunities as reasons Apollo management is counting on for the venture’s success.

    RECOMMENDED FOR YOU
    Hexpol acquires Spanish wire & cable compounder
    Hexpol acquires Spanish wire & cable compounder
    SGX invests in rubber trading platform HeveaConnect
    SGX invests in rubber trading platform HeveaConnect
    ECO starts “first" US silicone rubber recycling plant
    ECO starts “first" US silicone rubber recycling plant
    Free Newsletters

    Breaking news and in-depth coverage of essential topics delivered straight to your inbox.

    Subscribe today

    Get the latest news impacting the European rubber industry, from breaking news to razor-sharp analysis, in print and online.

    Subscribe now
    Connect with Us
    • LinkedIn
    • Twitter
    • Youtube

    Logo
    Contact Us

    @ 2019 European Rubber Journal. 
    European Rubber Journal is published bi-monthly by NUERJ Ltd.

    Registered Office: Castle House, 89 High Street,
    Berkhamsted, Hertfordshire HP4 2DF, United Kingdom. 

    Tel. + 44 (0)203 196 0141 

    Registered No. 13104613 England

    Email: [email protected]

    Website www.european-rubber-journal.com

    Customer service 

    Tel. + 44 (0)203 196 0141 

     

    Resources
    • About us
    • Contact Us
    • Advertise with Us
    • Media Kit
    • Ad Choices Ad Choices
    • Sitemap
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • News
    • Technology Focus
      • Features
      • Technical Papers
    • Events
      • ERJ Events
      • ERJ Livestreams & Webinars
      • Industry Events
    • Maps & Reports
    • People
    • Directory
    • Digital Edition
    • Brainiac