Apollo gets a flat tyre

Apollo Tyres is the big loser on the BSE today; the stock has literally crashed, down currently by a whopping 16% at Rs.77.40, just a tad above its 52-week low of Rs.73.80. Its lower circuit is at Rs.73.55.

The stock has fallen through the floor after it announced that it had acquired US-based Cooper Tire & Rubber Company, in an all cash transaction of Rs 14,500 crore. This is the largest deal in the sector and could make Apollo the seventh largest tyre company in the world. The transaction represents a 40% premium to Cooper’s 30-day volume-weighted average price.

The market is not happy with this deal as it means that the company’s debt will only go up further. To fund this deal, Apollo will be raising $2.5 billion in new debt. Of this, around $1.8 billion will be raised through issue of bonds and another  $300 million will be brought in by way of asset-based lending through a step-down subsidiary based in Europe. Apollo’s current debt stands at Rs.2300 crore and of this Rs.500 croreis via foreign debt.