This is where the rubber meets the road for investors of Cooper Tire & Rubber (NYSE:CTB), as Indian tire manufacturer Apollo Tyres has offered to buy out the U.S. manufacturer for $35 per share, or $2.5 billion.
The all-cash transaction represents a 40% premium to the average volume-weighted price of Cooper's stock over the past 30 days, according to the companies. The boards of directors of both companies have unanimously approved the sale. As of this writing, shares are trading at $34.51.
Cooper is the world's 11th-largest tire company by revenue, generating almost $4.1 billion over the 12 months ending March 31. Apollo is a well-known brand in many parts of the world and the merger of the two is expected to deliver value creation benefits of approximately $80 million to $120 million in EBITDA annually, with full realization of the synergies coming after the third year. The gains will be driven by "operating scale, sourcing benefits, technology, product optimization, and manufacturing improvements," said the companies.
Apollo Chairman Onkar S. Kanwar said: "The combined company will be uniquely positioned to address large, established markets, such as the United States and the European Union, as well as the fast-growing markets of India, China, Africa, and Latin America where there is significant potential for further growth. Our combined portfolio of brands and products will be among the most comprehensive in the industry."
Similarly, Cooper's Chairman, CEO, and President Roy Armes said there's almost no overlap in geographies served so that together there are "significant opportunities for growth."
With the deal expected to close in the second half of 2013, pending approvals including from Cooper shareholders, Cooper would become a privately held company and its stock would no longer trade on the New York Stock Exchange. The combined company would be the seventh-largest tire company in the world, with a combined $6.6 billion in total sales in 2012, according to the companies, and Cooper would continue to be led by current management.
Apollo Tyres received financing for the transaction solely from Standard Chartered, which also served as the deal's structuring advisor. Morgan Stanley's Senior Funding division, Deutsche Bank's Securities arm, Standard Chartered, and Goldman Sachs are joint lead arrangers providing committed funding to Apollo's acquisition subsidiary.
Sullivan & Cromwell and Amarchand & Mangaldas & Suresh A Shroff & Co served as legal advisors to Apollo. Bank of America's Merrill Lynch unit served as financial advisor and Jones Day served as legal advisor to Cooper.
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