Apollo's failed deal for Cooper sows doubt on future Indian M&A

Tue Dec 31, 2013 8:21am EST
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By Sumeet Chatterjee

MUMBAI (Reuters) - The ambition from Indian mid-sized companies for large debt-fuelled acquisitions abroad was dealt a major setback after the unraveling of a $2.5 billion bid by India's Apollo Tyres Ltd (APLO.NS: Quote) to buy Cooper Tire & Rubber Co (CTB.N: Quote).

While some bankers said Apollo's bid for Cooper was risky due to the larger size of the target, the outcome will add to skepticism about the ability of Indian family-run firms to execute large cross-border deals despite their need to search for growth abroad.

Apollo's bid for Cooper, hoping to transform itself into the world's seventh-largest tire maker, was surprising given that the Indian company was a third of the size of its U.S. target. Apollo relied on a hefty debt package for its ambitious attempt.

"It's like a casino game for some of the Indian company founders who dream of getting into the big league by finance-backed acquisitions, but the devil is in execution and very few of them are good at that," said Rishi Sahai, managing director at Cogence Advisors, a boutique India investment bank.

"Every investment banker would now be cautious in showing a billion-dollar-plus target to mid-sized Indian companies and question their ability to get the required financing and close the deal, while their Chinese counterparts come all prepared."

India Inc's overseas ambitions rose along with China's roughly 10 years ago as the two countries courted growth outside their own economies.

Corporate India has won some successful overseas deals, including Tata Motors' (TAMO.NS: Quote) acquisition of Jaguar Land Rover from Ford Motor (F.N: Quote) in 2008 for $2.3 billion.

But for the most part, India has struggled to show that its companies are equipped with the savvy, the experience and the determination needed to win cross-border deals and to manage them well.   Continued...

An employee works inside the warehouse at the Apollo Super Zone showroom in Mumbai October 8, 2013. REUTERS/Danish Siddiqui