Apollo riding on Cooper Tire & Rubber Company (NYSE:CTB) into the U.S market
U.S.-based Cooper Tire & Rubber Company (NYSE:CTB) will be acquired by India-based Apollo Tyres Ltd. for an amount of $2.5B. This deal will make Apollo the seventh-largest tire maker in the world and will considerably reduce the company’s dependence on the receding auto market in India. CTB is United States’ second largest tire-maker and its primary business segment is replacement tires for cars as well as light-medium trucks. Globally, the company stands No. 11 and its annual sales are $4.2 billion.
The sell-out will now give Apollo access to CTB’s main business in the U.S. Currently, two-thirds of Apollo’s revenue comes from India. It will be paying $35 per share, which represents a premium of around 43% to Cooper Tire & Rubber Company (NYSE:CTB)’s Tuesday close.
The U.S tire industry
Tires are highly-engineered, complex products that require natural rubber to perform effectively and safely. Around 70 percent of passenger-tire raw materials have a petroleum base. In 2008 and in 2011, there were severe butadiene monomer shortages across the world. This is the basic ingredient used in the manufacture of synthetic rubber. The one ray of hope for reducing dependency on petroleum is natural rubber. However, the tire industry in the United States is 100% dependant on imported natural-rubber. Developing economies such as India and China are prominent Hevea natural rubber exporters.
However, the supply from there is under a lot of pressure. In addition to this, the supply of Hevea natural rubber gets affected by natural disaster, devastating phytopathogens as well as political instability in the producing countries.
The time was right for US-produced natural rubber. Yulex guayule biorubber is now available on the required scale to meet the U.S tire industry demands. In 2012 June, the U.S. Department of Energy and the USDA awarded $6.9M to Yulex and its Consortium partners CTB, Arizona State University and the U.S. Department of Agriculture’s Agricultural Research Service for the development of 100% guayule rubber-tires and biofuels. Yulex believes that these guayule-based biorubber tires can bring about a revolution in the tire industry and Cooper Tire & Rubber Company (NYSE:CTB) is making sure it’s on the scene.