Apollo Tyres Cooper Tire Deal

APOLLO-COOPER ACQUISITIONNoNameEnrollment no.

1.Tejas Gorasiya1280505920332.Vivek Goti1280505920353.Janak Jani1280505920384.Jigar Jivani128050592042

A CEC REPORT ONSUBMITTED BY:SUBMITTED TO : Ms. Delnaz Dastoor

Apollo Tyres Cooper Tire DealGURGAON, India and FINDLAY, Ohio, USA June 12, 2013 Apollo Tyres Ltd (NSE: Apollo TYRE) and Cooper Tire & Rubber Company (NYSE: CTB) today announced the execution of a definitive merger agreement under which a wholly-owned subsidiary of Apollo will acquire Cooper in an all-cash transaction valued at approximately $2.5 billion. Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, Cooper stockholders will receive $35.00 per share in cash. The transaction represents a 40% premium to Coopers 30-day volume-weighted average price.

On June 14, a Friday, Apollo called a press conference at the Leela hotel in Chanakyapuri, New Delhi. Kanwar took centre stage, making a presentation, answering questions and always looking confident. His father Onkar Kanwar, made a few statements and answered some questions but was happy to take the backseat. It was clear that the deal had also signalled a transition at Apollo.

On June 15, three days after the announcement, Che was in the US at the invitation of Cooper, with a bid of his own to acquire the company. He bid USD 38 per share, USD 3 more than Apollo had.

About Apollo tyre:-Established in 1972A turnover of USD 2.34 billion as of FY 12-13Available in over 100 countriesOver 16,500 employees8 manufacturing facilities in Asia, Europe and Africa

About Cooper Tyres:-Cooper Tyres is the ninth largest company globally with a strong distribution network in both North America and China. It had sales of ~US$4200 mn (double the revenues of Apollo) in 2012 EBITDA margins in the range of 11-12% during the same period.70% of revenues come from North America.25% from China and neighbouring regions (South East Asia, Australia) and remaining from Europe. 95% of the revenues come from passenger cars and light trucks predominantly replacement and this has been the primary focus area for the company. Cooper has a 14% market share in this segment in the US. Eight manufacturing plants across 3 continents with 38% of capacity in low-cost countries (China, Mexico, Serbia)Apart from North America, it also has manufacturing facilities in both China and Europe (UK, Serbia) with a total production capacity of 53 mn tyres.

Announcement deal date and its reaction on stock price:

The Apollo-Cooper merger was announced on June 12, 2013.A day after the announcement, the price of the Apollo Tyres stock, which is traded on the National Stock Exchange of India and the Bombay Stock Exchange, dropped from the previous days close of Rs 92 to Rs 68.60 per share. A day later, it reached its 52-week low on concerns that Apollo was taking on too much debt to pay Coopernearly USD 2.5 billion.

Price variation in chart

How will it look post Consolidation?The combined entity with US$6.5 bn revenues would become the seventh largest tyre company globally with 14 manufacturing units across the globe.It hopes to realise synergies of US$80-120 mn from this acquisition operating leverage, sourcing benefits on raw material procurement, R&D etc. over the next three years.

The transaction would be EPS accretive given that Cooper had earnings of US$215 mn in CY12 and finance costs post tax will move up by US$175 mn and there is no dilution at Apollo.

Also, Apollo will now become a global player with presence across all the 5 continents (Americas, Europe, Africa, Asia and Australia), with the domestic business just contributing 19-20% of the consolidated revenues. However, net debt/ EBITDA and net debt/equity will significantly jump up.

Deal structure and valuation:-Apollo Tyres would be making an offer of US$35 for ~63 mn shares at Cooper Tyres which represents a 42% premium to Tuesdays close price. This along with US$300 mn of net debt and minority would take total enterprise valuation of US$2.5 bn. Given that Coopers EBITDA was US $ 521 mn.

The deal would be fully debt funded.

Cooper and Vredestein would come under a holding company based out of Netherlands which would be taking US$2.1 bn debt and it would be serviced by operations of these two entities.

Apollo is also taking a US$450 mn debt in a Mauritius based entity which will be used to fund the equity contribution of the Netherlands entity; this debt would be serviced by Apollos Indian operations.

The debt will be raised via bonds in the US market which are likely to have a 7-8 year maturity, a funding cost of 10%.

The company has no intention of any equity dilution in the near future.

Future Aspects of SynergyThe current deal may not reap benefits as quickly and analysts fear the first two or three years may be exceptionally tough when the synergies wont 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 Apollos capacity from 26 million to 80 million a year.

Apollo plans to introduce its truck tyres in the US market using Coopers dealership network and also sell Coopers passenger vehicle tyres in the Indian replacement market.

Acquisition RationaleGame-changer for Apollo and the IndustryLow-cost global footprint close to key end-marketsRisk diversification with multiple value leversTransaction expected to be accretive to Apollo's EPS from year one

Profitable and scaled China and North American businesses

Significant combination benefits

Complementary product portfolios

ParticularApollocoopercombinedSales($mn)232642016527EBITADA ($mn)264520784PAT($mn)111215151EPS($mn)0.223.493.71Net debt ($mn)45520475Debt/equity(x)0.740.021.34Debt/EBITDA1.720.021.34Market rank16117Geographic mix

Performa combined company:-

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Cooper Tire Terminates Deal to Be Acquired By India's Apollo Tyres:Cooper Tire & Rubber Co (NYSE:CTB) on Monday said that it was terminating a proposed $2.5 billion merger agreement with Indias Apollo Tyres, ending a month-long bitter standoff, after differences arose between the two sides over labor and pricing issues.

Cooper Tiresaid that the decision to terminate the deal was taken after Apollo notified that it had failed to find funds for the proposed acquisition.

According to merger deal announced by the companies in June 2012,Apollo was to acquire Cooper in an all-cash deal worth $2.5 billion, or $35-a-share, representing a 40 percent premium on the latters 30-day weighted average price.

According to the deal, Apollo Tyres, Indias second-largest tire maker will be liable to pay $112.5 million to Cooper if it breaches the contract, while Cooper will have to pay $50 million in break-up penalty if it chooses to withdraw from the deal.

If the deal stretches beyond Dec. 31, the breakup clause does not apply.

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