AKRON—Apollo Tyres Ltd.'s announcement that it is purchasing Cooper Tire & Rubber Co. for $2.5 billion caught many off guard. The surprise was not so much that Apollo and Cooper were getting together—there had been rumors about a potential deal since last year—but rather that the smaller Apollo, based in Gurgaon, India, is buying Cooper and not the other way around.
Strategically, the deal looks like a good fit. In buying Cooper, Apollo will gain tire manufacturing and distribution in the U.S., China and Europe as well as in Central America. The combined firms will be well positioned to grow globally in these markets—but also in India, Africa and Latin America.
The companies also expect to gain pre-tax "value-creation benefits" of approximately $80 million to $120 million a year. Together, the two firms will create a company with roughly $6.6 billion in annual sales—good enough for a ranking of No. 7 in the world. But as with any deal, there are pitfalls, questions and concerns, as well as a share of naysayers. Over the years, Cooper, which is based in Find-lay, Ohio, has marketed itself as American-owned.
Once the trans-action closes, that will no longer be the case—and a marketing edge that Cooper and its tire dealer customers enjoyed will be no more.
The combined entity also will carry a huge amount of debt. In the 100-percent debt-funded acquisition, the smaller Apollo, with $2.4 billion in annual sales, is buying Cooper, with $4.2 million in sales. Some question whether that amount of debt will hamper the two firms going forward, limiting capital investments and R&D spending. That's especially true in a difficult global business climate and, more narrowly, in a tire industry that is struggling in many markets of the world.
Most importantly, how will the foreign ownership of Apollo affect Cooper? Will the Indian company leave Cooper alone, at least initially, and make changes slowly while gaining a thorough understanding of how the tire maker has successfully operated over the years? Will it support and nurture the special relationship Cooper has built with its dealers, distributors and private brand customers? Will it push the Apollo brand in favor of Cooper, or vice versa?
Throughout its history, Cooper has been the tire company that could. While many industry observers have counted it out over the years, the company continued to follow its own unique and ultimately successful path. Here's hoping that with this next chapter, Cooper and Apollo find a successful synergy that will yield even more positive results—for both companies and their loyal dealers.