Apollo share price falls 21% after news of Cooper deal
Shares in Apollo Tyres Ltd plunged by up to 21 per cent the day the company announced its purchase of Cooper Tire. According to local news sources, it has been over 20 years since the share price fell this much. The negative sentiment is likely to related to the price Apollo has agreed to pay for Cooper, which at $35 a share, is far higher than the company’s 11 June closing price of $24.56 and potential price tags of around $25 that were mooted around the time rumours of the deal emerged in October 2012.
At that time, market observers suggest that even the circa $25 dollar levels were on the high end of the spectrum. Following confirmation of the deal the same sources applauded Cooper CEO and president Roy Armes’ successful negotiation of the $35 price. However while some in the Indian tyre industry lauded the company’s ability to close the largest outbound automotive transaction in Indian history (the next largest is Tata Motors’ Jaguar Land Rover purchase for $2.3 billion in 2008), some market analysts warned of the inherent risks:
“We see this as a risky acquisition as the management would have little room for error given the high leverage, very little synergy benefits and the poor demand environment currently,” Kaushal Maroo and Siddhartha Bera, analysts at Emkay Global Financial Services Ltd., wrote on 12 June.