Burning rubber

Are mergers and acquisitions (M&As) more about human ego and less about business rationale? It’s an idea that will be violently rejected by most businessmen, but there is no denying that, at times, “the thrill of the chase can blind the pursuers to the consequences of the catch.”

If one were to look at India’s biggest-ever automotive M&A deal through this lens, Neeraj Kanwar of Apollo Tyres seems to be treading on the same path. India’s second-largest tyre manufacturer by market value could not resist the temptation of gaining heft overnight by making an audacious move to acquire a company twice its size, Cooper Tire of the US, for $2.5 billion — a 42% premium to the then-traded share price. The move was largely an outcome of the father, Onkar Kanwar’s, ambition of making Apollo a $6-billion enterprise by 2016 and an obliging son who achieved just that — three years ahead of schedule. 

On the face of it, the deal looks great: the combined entity will become the seventh-largest tyre manufacturer in the world, covering large swathes of the global automotive market. But the move is fraught with risks, thanks to the leveraged buyout and the fact that Cooper operates in the world’s most mature tyre market. This is something investors are clearly unhappy about. And that the market, of late, is becoming increasingly intolerant of India Inc’s penchant for M&As is evident in the way it shaved off 25% of Apollo Tyres’ share price in a single session — by far the worst drop compared with the falls in Tata Steel (for Corus), Tata Motors (for Jaguar-Land Rover) and Hindalco (for Novelis). Correspondent Himanshu Kakkar digs deep to see if there is a clear and present danger for Apollo: Fast & furious $6 billion

Another interesting take in this issue is on Page Industries. The local franchisee of Jockey has been a star on the bourses, but can it sustain the magic for long? Read Will the appeal last?