Apollo Does “Good Business” with Vredestein – Purchase Price Revealed
It is not just Apollo Vredestein CEO Rob Oudshoorn that considers Apollo Tyres’ acquisition of the Dutch tyre maker to have been “good business”.
The phrase ‘hindsight is 20/20’ is often on the tips of tongues when erroneous information – such as articles published by the media – are later assessed. A particularly blatant example of this phenomenon can be seen when evaluating news reports about how much Apollo Tyres paid last year when it acquired Vredestein Banden. The inaccurate information that circulated has its origins in a report printed in the Indian newspaper Hindustan Times. In this article, Apollo Tyres Ltd. vice-president and joint managing director Neeraj R.S. Kanwar was extensively quoted on the takeover. The same article mentioned it anticipated Apollo Tyres paying around US$300 million for the Vredestein acquisition. In later reports further possible purchase prices “between $220 and $260 million” were suggested. While the exact figures vary, no doubt was given that Apollo Tyres would pay “big money” for Vredestein Banden. But it now turns out that all the market observers got it wrong, as Apollo Vredestein CEO Rob Oudshoorn confirmed in an interview with Tyres & Accessories.
In a recently published edition of “Analyst/Investor Conference Calls”, Gaurav Kumar, group head of Corporate Strategy and Finance at Apollo Tyres, shared that “a sum of 2.5 billion rupees was paid in order to obtain 100 per cent equity.” This gives a purchase price of about $50 million, around one sixth of the figure all the papers presented last May. When talking with Tyres & Accessories, Rob Oudshoorn expressed his surprise at how rapidly information from a sole Indian daily newspaper travelled around the world, regardless of how factual or unfounded it was. At the time, questions on the purchase price were not permitted to be answered due to the Indian manufacturer’s listing on the stock exchange, explains Oudshoorn, and he reminds us that our own questioning about a purchase price during an interview last year were met with a firm “no comment” reply.
So the price is $50 million, not $300 million. Is this a justifiable price for a tyre manufacturer that – as Apollo Tyres reports in its current annual report – has a yearly turnover of $429 million? “It is all rather relative,” Oudshoorn replies. The situation the company was in at the start of last year much be borne in mind. Its Russian owner Amtel was experiencing a severe cash flow crisis and ended up in insolvency (which became final for all parts of the business in June 2009). In addition, the global financial and business crisis cast a dark shadow over the tyre industry. This even affected companies such as Vredestein that – as is well known – were virtually inactive in the heavily impacted original equipment sector. In hindsight then, Oudshoorn must admit: “It was a rather good deal for Apollo.” But when further parameters are also considered the picture looks quite different.
The Netherlands based holding company Amtel-Vredestein N.V had already filed an insolvency application in early April 2009. The insolvency administrator’s task was now to liquidate parts of the business on behalf of creditors. The fact that Apollo Tyres’ bid was then accepted came as music to Rob Oudshoorn’s ears, as the Indian company’s assertiveness and determination to expand plus its position as a ‘benchmark’ in the Indian tyre market was well known. If things had been different and neither this optimal solution for Vredestein Banden’s future nor a deal with another purchaser had panned out, the Dutch tyre maker’s future outlook would have been grim. “We would have been completely bled dry,” Oudshoorn admits today.
One potential reason why Apollo Tyres may have been able to pay “only” $50 million or so for Vredestein Banden is that the Indian purchaser could have taken over a mountain of debt or other liabilities, such as pensions. Mr. Oudshoorn did not wish to comment on this subject personally and Apollo in India declined to answer related questions, however a look at the Indian manufacturer’s own publications shows that between December 2008 and September 2009 – the timeframe in which Vredestein Banden was acquired – shows debt increasing by as little as two billion rupees. This equals some $40 million. Thus, it is not just Rob Oudshoorn that considers the deal “good business”.