Financial Daily from THE HINDU group of publications
Tuesday, Jan 31, 2006
Financial Daily from THE HINDU group of publications Tuesday, Jan 31, 2006 |
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Tyres Corporate - Mergers & Acquisitions Apollo Tyres to buy Dunlop South Africa for Rs 290 crore — To get access to European market via distribution network K.R. Srivats
New Delhi , Jan 30 IN a significant all-cash overseas deal worth about Rs 290 crore, the board of directors of Apollo Tyres Ltd (ATL) on Monday approved the acquisition of the Durban-headquartered Dunlop Tyres International (Pty) Ltd (Dunlop South Africa). The 100 per cent equity buyout transaction, which is subject to regulatory approvals in both countries, would enable the Rs 2,650-crore ATL to secure a toehold in the fast growing Africa region and also a strong presence in the South African tyre market. Besides the benefit of superior radial tyre technology, the acquisition would also enable the domestic tyre major to access the European market through the distribution network owned by the $200-million Dunlop South Africa. Elaborating on the deal after today's board meeting, Mr Sunam Sarkar, Chief (Strategy and Business Operations) and member of the ATL board, told Business Line that an investment vehicle would be set up for making the acquisition. "The location of the investment vehicle would be decided on tax and other considerations," he said. While Dunlop South Africa has an equity capital of $7 million, it has a balance-sheet size of about $ 170 million. Asked as to how ATL proposes to finance the acquisition, Mr Sarkar said that the transaction would be financed from internal accruals and bridge loans. In due course, the bridge loans would be replaced by long-term financing (could be debt or equity). By virtue of the equity buyout of Dunlop South Africa, ATL would get to control Dunlop Africa Marketing UK (registered in the UK), which is a 100 per cent subsidiary of Dunlop South Africa and also the holding company of Dunlop Zimbabwe (which owns the Zimbabwe facility). Dunlop South Africa has 3,000 employees, two plants in South Africa (each 75 tonnes per day) and one plant in Zimbabwe (35 tonnes per day bias tyre facility of Dunlop Zimbabwe). At present, ATL's capacity in India is about 750 tonnes per day. Mr Sarkar said that ATL has no plans of making any changes to the management of Dunlop South Africa. Moreover, the existing brands of the acquired company would be continued. Prior to this transaction, financial investors (comprising mainly private equity, individual investors and some holding by members of senior management) owned Dunlop South Africa. Mr Sarkar expressed confidence that all regulatory approvals would be received by March. "As far as India is concerned, we have to only get a post-facto approval from the Reserve Bank of India as the transaction is lower than $500 million. As regards the South African Competition Commission, we don't foresee any problem," he said. Apart from Dunlop South Africa, the other three significant players in the South African market are Continental, Bridgestone and Goodyear. All the four players enjoyed nearly equal market share.
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