'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) 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) and Ford ( F) 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) 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.

"This is a compelling transaction that is in the best interest of Cooper's stockholders and offers attractive benefits to our customers and employees," Roy Armes, Cooper's chairman and chief executive, said in a statement. "Together, our two organizations have almost no geographic overlap and significant opportunities for growth."

The $2.5 billion merger is expected to close in the second half of 2013, subject to shareholder and regulatory approvals. Cooper will continue to be led by members of its current management team and will continue to operate out of its facilities located around the world, Apollo said in a statement.

Apollo also indicated there will be little change to Cooper Tire's unionized employees.

"Cooper will continue to recognize the labor unions and honor the terms of collective bargaining agreements presently in effect while generally maintaining compensation and benefit levels for non-union employees," the company said.

Apollo will be issuing $2.5 billion in new debt through dollar-bonds and asset backed loans to fund the cash acquisition and has hired Standard Chartered Bank ( STAN), Deutsche Bank ( DB), Morgan Stanley ( MS) and Goldman Sachs ( GS) to finance the deal.

Morgan Stanley and Deutsche Bank served as financial advisors and Greater Pacific Capital acted as strategic and financial advisor to Apollo.

Bank of America Merrill Lynch served as financial advisor to Cooper Tire and Jones Day acted as legal advisor.

-- Written by Antoine Gara in New York

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