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Apollo Tyres and Cooper Tyres Buyout: The Deal Gone Sour, What Next for Apollo Tyres?

CASE STUDY, STRATEGY
Institute of Public Enterprise , 7 pages
AUTHOR(S) : Dr. A. Sridhar Raj, Assistant Professor, Institute of Public Enterprise, Hyderabad

Case Preview

Apollo Tyres and Cooper Tyres Buyout: The Deal Gone Sour, What Next for Apollo Tyres?

 

The deadline, December 31st 2013 was fast approaching for both Apollo Tyres Ltd. (Apollo) and Cooper Tire & Co (Cooper) since Apollo agreed to buy Cooper to strengthen its presence in both North America and China. Apollo could sense a huge treasure pot in Cooper as it had a huge presence in North America, China and parts of Europe as well. However, the treasure pot turned out to be an albatross neck for Apollo as the senior management team seemed to have hurried itself towards the decision to buy the US-based Cooper Tire & Rubber Company by overvaluing the latter’s potential. The attempts by Apollo to get the deal revised hit a dead lock as Cooper remained adamant and filed a complaint in Delaware Court against Apollo for enforcing the buyout at the earliest. The Delaware Chancery Court did not find merit in the argument of Cooper and found that Apollo did not breach any agreement.

The ruling was a setback to Cooper, which wanted to compel Apollo to buy Cooper through the judicial ruling. Even an appeal by Cooper tyres against the rule in the Delaware Supreme Court was dismissed, which forced Cooper tyres management to come to terms with reality. With the court ruling by its side, Apollo waited for the move from Cooper tyres. With an unfavorable decision stacked against the company, the CEO of Cooper tyres, Roy V. Armes believed it to be prudent to call off the deal. On December 30th 2013, just one day before the conclusion of the agreement, had everything gone well, Roy V. Armes called off the deal stating the Apollo tyres had failed to find finance for the transaction...........

The Buyout Effort

Onkar Kanwar (Onkar) was a man of high ambitions as he was always on the drive towards being big by entering into the league of big players. However, with the 2008 recession, his hopes splintered as his company became cautious of the acquisitions. The situation did not improve as the global economy was engulfed in a major slow down and Onkar sensed that the time was running out for Apollo tyres to make inroads into big league.............

Apollo Tyres Ltd.

Onkar studied in the University of California and cherished the ambition of making it big once he returned to India. His father, Raunak Singh was a small businessperson selling steel tubes for bicycles, under the brand name ‘Apollo’ established in 1972. However, Onkar wanted to make Apollo a large company and wanted to scale its operations. After returning to India in 1979, he sensed the opportunity of scaling up the operations of his father’s business and soon took a leading role in the affairs of the company. The aggressive approach of Onkar was not appreciated by his father leading to family dispute about the ownership of the business, which embittered the father-son relationship, but facilitated Onkar in taking driver’s seat of Apollo tyres..............

Cooper Tire and Rubber Co.

Cooper Tyres has a history of one hundred years when John F. Schaefer and Claude E. Hart purchased a company, which was into tire repair kits in the year 1914 and in the year 1915; they brought Giant Tire & Rubber Company. The company grew during and after the World War I and changed its name to Cooper Tire and Rubber Company in the year 1946. The company became a listed company in the year 1960, expanded its reach and made it into the league of fortune 500 companies. In the year 1991, the net sales of the company reached $1 billion and this was possible due to its expansion to 50 manufacturing facilities in nine countries.............

Global Tyre Industry

Tyre industry poses its own challenges to the manufacturers although with increasing sales of automobiles across the world, the sales of tyres are also in demand. The automobile industry across the world is growing at a brisk pace after the slowdown. According to a McKinsey Survey, the future growth in automotive sector will be in emerging economies (Exhibit II). The report further states that emerging markets’ share of global sales will rise from 50% in 2012 to 60% by 2020, while their share of global profits is also set to rise by 10 percentage points...........

Indian Tyre Industry

The total turnover of tyre industry stands at INR 43,000 crore and top ten tyre companies in India account for more than 95% of total production in India. Out of the total production of total units, it is found that majority of the tyres are produced for two wheelers like motor cycles and scooters followed by passenger cars during the year 2011-12. However, the trend is not that dissimilar during the earlier years...........

The Expectations going Haywire

Apollo tyres agreed to pay $35 per share which meant a premium of 43% of the market price before the deal was announced. The deal, $2.5 billion dollars was the biggest by an Indian company and was hailed as trend setter in the field of mergers and acquisitions. Matters turned thorny when the market share price of Apollo tyres slumped by 9% and the investors were worried about Apollo’s move and similarly the share price of Cooper tyres also got thumbs down by the investors...............

The Next Steps for Apollo

When Roy Armes made an announcement on December 30th 2013 was made, Apollo tyres reacted cautiously. The deadline for the deal passed off peacefully and although both Apollo and Cooper were yet to close the deal formally in the form of termination charges and break-up fees. The mood seems to be upbeat as shares of Apollo Tyres touched a 52-week high of 117, which was an indication of the fact that the deal did not go well with the investors and even for both the companies which faced each other in the court.............

Exhibits

Exhibit I: Comparison of Cooper Tire & Rubber Co. and Apollo Tyres Ltd.

Exhibit II: Global Automotive Sector

Exhibit III: Sequence of Events between Apollo Tyres and Cooper Tyres

Teaching Note Preview

Apollo Tyres and Cooper Tyres Buyout: The Deal Gone Sour, What Next for Apollo Tyres?

 

Synopsis

The case study was written to analyze how the intent of acquiring a company went wrong in the backdrop of less transparency between the stakeholders. The case study discusses the issues pertaining to the due diligence process which is very important for any company before taking a major decision like acquiring another company. The case study also brings forth issues pertaining to the inadequacy of foresight of leadership in the entire process as the entire deal was expected to be closed in a span of six months.

The case study also brings forth issues pertaining to the supplier who could cause havoc in the process of merger or acquisition in case the former is not happy with the deal. The case study brings into limelight how the Chinese supplier of Cooper tires could successfully place the spanner in the deal, completely halting the entire process. The case study is also a reflection of how human resources issues can put a break on the entire process of the deal, if the apprehensions are not handled appropriately and addressed with firm commitment from the potential acquirer.

During the discussion, the participants may also discuss how the mergers and acquisitions have gone wrong in many instances and a good example is the acquisition of Ranbaxy Laboratories Limited, an Indian multinational pharmaceutical company by Japanese pharmaceutical company Daiichi Sankyo. The class may also discuss how the exemplary and smooth acquisition of Ranbaxy Laboratories Limited by Sun Pharmaceuticals Limited.

Prerequisite Conceptual Understanding

The students or the participants should be encouraged to read the background material which enhances the understanding of the application of the concepts from a broader and wider perspective.

  • • Michael A. Hitt, et al., Strategic Management, Cengage Learning, 2012
  • • Marion Devine, “Successful Mergers”, The Economist, 2004
  • • Scott A. Christofferson, et al., “Where mergers go wrong”, McKinsey Quarterly, May 2004

 

Expected Learning Outcomes

  • • Understand the nuances pertaining to the decision to buy Cooper tires by Apollo tyres and the implications of such a buyout for both the companies
  • • Debate role of Apollo tyres and Cooper tires in aggravating the problem to such an extent that the court had to intervene between the two companies
  • • Discuss the role of the Chinese partner of Cooper tires and the workers in US in putting brakes on the entire deal going smoothly

 

Case Positioning and Setting

This case study can be suitably used in MBA Program in Strategic Management course in Merger and Acquisition module

Assignment Questions

I. What are the advantages for Cooper tires and Apollo tyres from the deal?
II. What could be the reasons for the Chinese partner for not parting with the financial information?
III. ............

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Abstract


The case study engages the participants in the discussion pertaining to problems faced by an organization in the process of global expansion. The case study brings in how lack of due diligence would result in inadequate execution of the process of acquisition and the extent organizations spar to defend their position. The case study helps the participants to understand the nuances of decision making with reference to culture, expansion, acquisition, etc. The case study also poses the questions pertaining to how deals go wrong when caught unawares and sensitizes the participants about the implications of poor due diligence and emergence of unforeseen conditions, marring the entire process of undertaking certain activities.



Pedagogical Objectives

  • To understand the importance of due diligence in acquisition of a company
  • To discuss the issues arising out of cross-cultural expansion in the light of clash of opinions and views
  • To discuss and debate the extent to which a deal can go sour if the issues arising are not understood and addressed properly

Case Positioning and Setting
This case study can be suitably used in MBA Program in Strategic Management course in Merger and Acquisition module





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- Teaching Note (**ONLY for Academicians)
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