The world's fourth largest tyre maker, the German-based Continental said on Monday it will buy Modi Tyres Company, a subsidiary of the listed Modi Rubber.

In a press statement, Continental said it has signed an agreement with Modi Rubber to acquire 100 per cent shareholding in Modi Tyres Company Ltd (MTCL). Modi Tyres already has a licensing arrangement with the German company to make Continental branded truck and bus tyres for the Indian market.

The completion of the transaction still depends on the fulfilment of several conditions, the statement said.

After completion of the transaction, MTCL will become a fully owned subsidiary of Continental Corporation. The company will focus on local production and distribution of bias and radial truck/bus as well as radial passenger car tyres for the Indian market. With sales of €26 billion in 2010, Continental is also among the leading automotive suppliers worldwide.

The announcement of the deal saw Modi Rubber's shares rise 10 per cent to close at Rs 75.35 while the market cap was Rs 188.38 crore.

A Continental spokesperson told Business Line that India being a growing market, it sees a huge potential here.

“With further economic development and global exposure, this (domestic market) will continue to develop, and there will be an increase in demand for vehicles with high quality tyres. Technologically too, there is development at a fast pace,” the spokesperson said. The spokesperson, however, did not give further details on the transaction.

An analyst with a brokerage firm said by striking a deal to buy a subsidiary company of Modi Rubber, it will be able to skirt the issue of open offer from the Indian company's shareholders.

Modi Rubber, it is learnt, owns over 85 per cent stake in Modi Tyres. With the formal entry of Continental, the competition among the international players, which includes the world's largest tyre maker, Bridgestone and Goodyear, will hot up in the Indian market.

But the analyst said the real competition will come from the domestic players such as MRF, Ceat, JK Tyres and Apollo. “In the short term, the development may not have much of an impact, but in the long run, there will be tough competition,” he said.

Mr A.S. Mehta, Director Marketing, JK Tyre Industries Ltd, told Business Line that the market and the industry were well aware about this development.

“We welcome the move in an already competitive environment where MRF, Apollo, JK Tyre amongst others are well entrenched. This is a bias plant and we do not foresee too many developments and changes in the market place as a result of this development.”

“However, it is to be seen what Continental brings to the Indian marketplace over a period through this association,” he said.

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