Indian tyre maker Apollo Tyres has run into problems over its proposed US$2.5 billion acquisition of US tyre maker Cooper Tire. Firstly, in June, prices of the public-listed firm plunged the most in more than two decades in Mumbai trading, wiping out a quarter of its market value, after it agreed to acquire Cooper Tire. More recently, it ran into a strike by nearly 5,000 Chinese workers at a Sino-US joint venture tyre manufacturer operated by Cooper and the Chengshan Group, in protest of the takeover.
The acquisition, the biggest by an Indian company in the automobile sector so far, is also driven by the company’s opportunity of participating in the Chinese market, which is one of the fastest growing automobile markets.
The Chinese workers who protested said the takeover could endanger their jobs and expressed concerns about cultural problems with future Indian bosses. The American tyre maker has since clarified that production employees at its facility in China have returned to the factory and the protest is over. Cooper’s second plant in China is operating as normal without any troubles.
The Indian company that already owns two overseas subsidiaries, Dunlop in South Africa and Apollo Vredestein in the Netherlands, said that currently the deal is on and the issues in China are part of Cooper company.
Apollo Tyres, which currently does not operate in the US and gets two-thirds of its revenue from India, has put its future investment plans on the back burner, including a greenfield investment in Thailand. The company has identified the land and negotiated with the Thai government, but not finalised any specific plans. It is aiming to close the Cooper deal by mid-October this year.
Apollo is aiming to be amongst the top ten tyre makers by 2016, with 43% revenue coming from North America, 22% from India and 18% from China. The company would gain footprint across four continents with 14 manufacturing facilities globally if the deal goes through. Of this, approximately 50% of the manufacturing units will be in low-cost countries as Cooper’s 40% production comes from low-cost markets such as China. It also has plants in Serbia and Mexico.
Apollo Tyres is also selling most of its South African operations to Sumitomo Rubber for US$60 million and is looking to offset slower automobile demand in India and Europe amid weaker economic expansion.