Apollo Tyres CFO reveals real story on failure of Cooper deal Firstbiz — Volkswagen Apollo

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Apollo Tyres CFO reveals story on failure of Cooper

B y Ashish K Mishra

In an explosive with Forbes India, Sarkar , chief financial of Apollo Tyres, says the proposed $2.5 billion didn’t fail because of of due diligence but because Apollo people at face value.

Q: was the idea behind the merger?

Our industry is increasingly getting between the customers who are getting and larger, the global automotive so groups like Volkswagen and or General Motors, they significant purchasing power. On the side too there has been Other than natural all the other suppliers whether it is or Lanxess, they have all consolidating. In the tyre industry, between rank 4-20 be in an increasing squeeze as we face from both sides. in the same place is really not an because some of the players Chinese players are growing very quickly. Based on a protected home market, the of Chinese players who have up, they still haven’t in the top 10, but in the rank 10-20, ten years there was nobody and now there are at four or five in this ranking. Players like from Korea have very well and broken in the top 10. We managed to do well with organic and inorganic growth but it would have been and more difficult being in the place. So we needed to grow of the rest of the industry. Inorganic helps you cut the curve (time and very, very significantly. an inorganic growth also you readymade pool of people who you grow faster.

So with Cooper, it was a perfect Across geographies, product, it was the ideal tyre company you want to see.


Q: the issues that came up the merger announcement, how was the process of due and did you know what you were into?

Sarkar: I know there is a that Apollo has been or inadequate in its due diligence. Let’s get it on that in a US publicly listed the amount of diligence one can do has its limitations. We done the South African and the European transaction, both different circumstances but neither was a company and we had a great deal of in what kind of diligence be done. What is the purpose of due It is to identify potential liabilities and factor those in the price. subsequently have shown we did not paper over any significant There was nothing on the environment legal, tax, accounting. What caused this to fail eventually was the intransigence of one in China. And no amount of diligence have impacted or changed view on that until you what the real story

Q: What was the real story?

This is what we discovered and is now part of the court filings Cooper was trying to sell to this guy (Zhe Hongzhi, of Chengshan Cooper Tires in even the day after they the agreement with us. On the 12th of they signed with us. On the of June, this guy was in the US at their to see if he would bid higher. He did bid higher. He bid $ 38 per but Cooper believed his financing was not as as Apollo’s and chose to go ahead Apollo. That’s really the factor behind this thing.

Q: Tell me something, from the start, were you comfortable with the people you doing business with?

With the vast majority of we interacted with which is the management team, we had a great of comfort. Because we had such a of comfort, we took them at value when they that in the Chinese joint things are going well them and there is no problem and so on.

Q: Let’s get back to some Cooper Tire and Apollo have been talking to other for quite some now. About four now?

Sarkar: Our first exposure to Cooper was when we the acquisition in South Africa in Dunlop Tyres, we acquired, was Cooper’s products in Africa. had been some level of even before that Mr. Kanwar had visited them. In the they were known as the in the tyre world because were hugely profitable. In when I joined the company, 14 back, I was told specifically you should be looking at the Cooper because they do only and they are very profitable what they do. In 2006, we looking at what other of cooperation could be possible we identified things like use of test track, manufacture for them in India and some sourcing of raw materials. These projects that we worked on but we never executed any for a variety of

The really major one that we working on together was the East Greenfield facility. This was to be in Hungary where we identified a of land also. But we landed in a kind of Tata Motors kind of issue. It was supposed to be a JV. But Lehman Brothers happened and all of a Greenfield went on the back At around the same time, the opportunity came about so our need of European presence got And then we got busy with the integration.

In early 2011, we brought back the thought of could be done with A trigger was also the fact the US financial market had started and the possibility of debt financing was Clearly we knew from the beginning that this have to be a leveraged buyout. So again contact with was established. Cooper was fairly with sharing their with us, in terms of actually out five year strategic and so on. So they made detailed presentations and worked actively us to increase the value that we willing to pay for it.

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