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'Unprecedented' $2.5b Cooper Tire Deal Highlights Auto Industry Change

Updated from 11:05 a.m ET to reflect analyst comments and additional data throughout

NEW YORK ( TheStreet) -- Cooper Tire (CTB - Get Report) is being bought by Indian tire manufacturer Apollo Tyres for $35 a share, in an all cash deal that highlights a fast-changing global auto industry.

Apollo's acquisition, which values 99-year old Cooper Tire at $2.5 billion, also comes at a crossroads in the post-financial crisis recovery of U.S. and emerging market economies. Outside of financial services, few industries are telling of such change as the automotive industry.

Indian and Chinese acquirers emerged at the onset of the 2008 financial crisis as major acquirers in the U.S. automotive sector as ndustry heavyweights such as General Motors (GM - Get Report) and Ford (F - Get Report) liquidated underperforming brands and came close to collapse.

Amid a recovery in domestic auto sales and an economic slowdown in some emerging markets, Apollo's acquisition signals continued interest the U.S. auto industry. This time, M&A appears targeted at balancing earnings across developed and emerging markets.

Apollo's acquisition, which comes at a 43% premium to Cooper Tire's closing share prices on Tuesday, is an aggressive move to enter the U.S. market and is expected to grow the company's earnings through a mix of synergy and increased operating scale.

Shares in Cooper Tire surged over 40% to $34.50 in Wednesday afternoon trading.

After the merger is completed, Copper Tire and Apollo will be the seventh largest tire company in the world with combined revenue of $6.6 billion, according to the companies' press release. In 2013, Cooper earned over $4 billion in revenue, or about two-thirds of the combined company's projected revenue.

Findlay, Ohio-based Cooper Tire is the 11th-largest tire manufacturer in the world by revenue and already gets about 40% of its sales from international markets.

The company is most well-known for its namesake Cooper brand, however, it also sells tires under its Mastercraft, Starfire, Roadmaster and Avon tire brands. Cooper has a presence in China through its Chengshan brand, a joint venture with the Shandong Chengshan Group.

At $2.5 billion, the deal is among the biggest acquisitions by an Indian firm of a U.S. auto industry heavyweight. Other emerging markets such as China have also been active acquirers. In 2008, Ford (F - Get Report) sold its Jaguar and Land Rover brands to Tata Automotive for $2.3 billion. Ford also sold its Volvo brand to Geely Automotive of China and General Motors also unloaded some brands to Chinese buyers.

At the time, those deals highlighted a struggling U.S. auto industry.

Wednesday's acquisition of Cooper Tire by Apollo, however, comes as U.S. auto sales are a ballast to global automotive demand and emerging markets such as India have cooled.

Earlier in the week, the Indian rupee fell to a record low versus the U.S. dollar.

Apollo Tyres chairman Onkar S. Kanwar characterized the deal as "transformational" and "unprecedented" in creating an international player with a strong foothold in recovering developed markets and high growth emerging markets.

The deal is also expected to drive up to $120 million in earnings before interest, taxes, depreciation and amortization (EBITDA) through a mix of increased operating scale, supply chain synergy and manufacturing improvements, the company said in a press release.

"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," Kanwar said in a statement.

"We do not foresee other competing bidders for acquiring [Cooper Tire] as other suitable acquirers have significant geographic and product overlap," Brett Hoselton, a KeyBanc Capital Markets analyst, wrote in a Wednesday client note.
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