Published on August 31, 2009 @ 6:00am EST

Apollo's Vredestein buyout to add $450 million in sales


AMSTERDAM, Netherlands (Aug. 31, 2009)—India's Apollo Tyres Ltd.'s acquisition of Dutch tire maker Vredestein Banden B.V. earlier this year will add about $450 million to Apollo's annual sales and give the Gujarat, India-based tire maker a key entrée to the European marketplace, where it up until now has distributed through independent distributors.

"This is a strategic alliance for us and will bolster Apollo's plans for its European customers," said Apollo Chairman and Managing Director Onkar Kanwar.

"The fit between the two companies spans the entire spectrum of R&D, products and people to manufacturing and markets," Mr. Kanwar said. "It is a synergistic match and our aim is to increase Vredestein's global value in the coming years."

The two companies have yet to disclose their plans for North America, where Vredestein has gone to market for years through its Vredestein Tyres North America Inc. subsidiary in Metuchen, N.J.

Vredestein Tyres President Al Smoke said earlier this year it's possible Vredestein Tyres might handle Apollo's line of tires in North America at some point in the future.

Apollo has not distributed tires in North America up to now, generating more than three-fourths of its annual revenue from sales in Asia. Prior to this acquisition, Europe represented less than 2 percent of sales.

Apollo's deal to buy Enschede, Netherlands-based Vredestein from the bankrupt Dutch-Russian holding company Amtel-Vredestein N.V. was begun in November 2008 and approved in late May for an undisclosed sum by a Dutch bankruptcy court judge. Analysts put the value at $300 million.

Vredestein's sole plant in Enschede has annual capacity for 5.5 million tires, roughly 70 percent of which are high-performance car tires. The majority of Vredestein's business is in Europe with the Vredestein and Maloya brands.

"This alliance is a win-win combination for both companies," said Vredestein Banden CEO Rob Oudshoorn, who added the partnership with Apollo will bring a "desired level of stability" to Vredestein and its employees. "We will bring to Apollo our edge in passenger car tire technology alongside an understanding of the European market."

At the same time, "Apollo can offer us access to the non-European markets, valuable manufacturing expertise and assistance with bringing down costs by leveraging the purchasing power of a larger entity," Mr. Oudshoorn said.

Vredestein employs approximately 1,500 and has averaged an earnings/sales ratio of 8.5 percent over the past five years, Apollo said.

Vredestein Banden was bought by Amtel Vredestein in April 2005. It was able to keep itself afloat through Amtel-Vredestein's bankrutpcy by obtaining separate financing.

This is Apollo's second major acquisition in the past four years. In 2006 it bought Dunlop South Africa and has since integrated its operations fully. Apollo reported fiscal 2009 sales of $1.07 billion.

"I have closely watched Apollo's acquisition and integration with Dunlop South Africa," Mr. Oudshoorn said, "and the way they went about the merger speaks highly of the Apollo management's outlook on people and implementing best practices."

Neeraj Kanwar, vice chairman and joint managing director of Apollo, said a comprehensive integration process being planned would focus on research and technology, products and brands, corporate purchase and finance.

"We will continue to run Vredestein Banden under the leadership of the current Vredestein management," he said. "As is our norm, the idea going forward is to ensure we leverage on each other's strengths for combined benefits and better products and services for our customers."

Apollo said its earlier plans to build a plant in Europe are on hold pending further review. Apollo had pursued plans in 2008 to acquire land in Hungary for a plant, but local opposition and other factors prompted Apollo management to back off and consider other options.

Separately, Apollo recently began production of OTR tires at a new plant in India and expects production at a second new plant, for car and truck tires, to begin before year-end.

The new car and truck tire plant near Chennai, India, is designed to produce 8,000 passenger and 3,000 truck/bus radials a day.

Apollo began production of OTR tires in the first quarter at its $27 million plant in Limbda, Gujarat, and said it continues to invest in the facility to add radial capacity there. Production initially comprises tires in rim diameters from 35 to 49 inches.


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