When David buys Goliath
When a smaller company purchases a larger company, it is only natural to wonder why it wasn’t the other way around. That question was on the minds of many when Apollo Tyres Ltd., a $2.4 billion tire company, agreed to acquire Cooper Tire & Rubber Co., a $4.2 billion company.
Cooper wasn’t looking to acquire an Indian company, according to Chairman, CEO and President Roy Armes. “We were looking to understand more about that market through our (existing) relationship with Apollo.”
Apollo, though, was following through on the aggressive five-year plan it put into action in 2011. Logically, it was the only way to become a top 10 tire manufacturer so quickly.
When Apollo announced it was borrowing the $2.5 billion purchase price, more questions were raised.
Neeraj Kanwar, vice chairman and managing director, says the leveraged debt will not be a problem. "We believe this transaction has been financed in a prudent manner and fully supported by our lenders. They see the financial and the strategic impact of the deal."
It won’t change the way the combined company goes to market, either.
"I don’t see how the debt will affect Cooper or Apollo’s way of doing business in the various markets,” he says. “It will be business as usual for both companies.”
In this exclusive interview with Kanwar, Modern Tire Dealer defines what "business as usual" means from Apollo’s perspective.
MTD: In 2012, you commenced a five-year growth plan to become a top 10 tire manufacturer. You were the 16th largest tire manufacturer based on sales at the time, and will reach your goal when the purchase of Cooper is completed. How does the acquisition affect your five-year plan?
Kanwar: Yes, you are right; we commenced our second five year strategic journey in 2011-12 with the target of joining the elite league of global top 10 tire manufacturers. Once the Cooper transaction closes, we would be ranked at number seven. While the larger focus is to integrate the two companies and to realize the synergies of the joint entity, the key theme underpinning both companies is to continue to delight the customers and offer the full suite of products across a basket of brands offering value across price points.
MTD: Do you have plans to sell Apollo passenger and light truck tires in the United States?
Kanwar: It is too early to comment on any such plans, which would be worked upon during the integration process. The idea is to supplement the current product mix and plug in gaps in segments where Cooper currently does not have a product. I think with our 30-plus years experience in commercial vehicle tires technology and our global OEM relationships, Apollo can make a significant impact on Cooper’s evolution in the North American market.
MTD: Do you plan to produce Vredestein and/or Apollo passenger and light truck tires in Cooper’s North American plants? If yes, will you have to increase capacity to do so?
Kanwar: Again, as mentioned earlier, any such plans will be worked out during the integration process. Nevertheless, we have always placed extremely high importance on having production capabilities within close proximity to the markets being served and the combined entity’s manufacturing footprint will support that philosophy in the U.S. and beyond. In the long term, we will evaluate the best combination of products and relationships for all our factories to ensure that we see robust growth in all geographies and serve the customer in the best possible way.
MTD: Do you have any plans to build a tire plant in North America?
Kanwar: Our hands are already full with this acquisition and the related integration process; and, if necessary, we might look at increasing the capacities of existing facilities, rather than building a new one.
MTD: Cooper has one consumer tire OE fitment: The Zeon RS3-A on Ford Focus models. Are there plans to increase Cooper’s OE presence here?
Kanwar: Cooper is largely seen as a replacement brand. On the contrary, Apollo has significant relationships with key global OEMs like Volkswagen, General Motors, Hyundai and Ford amongst others. I strongly believe that we can leverage Apollo’s relationship with OEMs to have a significant impact on the combined entity in the OE space.
MTD: Do you believe selling tires in India is the same as selling tires in the U.S.?
Kanwar: While each market will have its own dynamics depending on the maturity of the market and the consumers, I believe that selling tires fundamentally hinges around offering good products at the right price point to suit the customers’ requirement. Each company entering a new market will have to go through a learning curve. However, Apollo does not have to reinvent the wheel in the U.S. and Cooper in India thanks to a large talent pool and highly capable management team in both countries.
For more, see our interview with Roy Armes by clicking here.