Did Cooper Tire & Rubber Get a Good Buyout Offering Price?

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Recently, Cooper Tire & Rubber (NYSE: CTB) received a buyout offer from an Indian high-performance tire manufacturer, Apollo Tyres. Apollo would like to acquire Cooper Tire & Rubber at around $35 per share, which is 40% higher than the company’s 30-day volume-weighted average price. The total transaction is worth around $2.5 billion. However, a company’s shareholder has commented that an offer of $35 per share was too low. Let’s take a closer look to determine whether or not a $35 per share is a fair price for Cooper Tire & Rubber.

A big player in global tire industry

Cooper Tire & Rubber is considered the fourth largest tire manufacturer in North America and the eleventh largest in the world, holding around 14% market share in the U.S. light vehicle replacement tire market. It operates in two main business segments: North American Tire and International Tire. Most of its $296 million in profits for 2013 were generated from the North American Tire segment, while the International Tire segment contributed around $143.6 million. The company’s biggest customer, TBC/Treadways, brought nearly $550 million in revenue, accounting for 13% of the total 2012 revenue. In terms of product revenue breakdown, around 47% of its total revenue derived from passenger product while the light truck product ranked second to account for 23% of the total sales.

Good growth and strong balance sheet

In the past four years, Cooper Tire & Rubber experienced good in both its top line and bottom line. Revenue increased from $2.78 billion in 2009 to more than $4.2 billion in 2012 while the net income rose from $52 million, or $0.85 per share to $220 million, or $3.49 per share during the same period. I like that the company has a conservative capital structure. As of March 2013, it had $816 million in equity, $272 million in cash and only around $386 million in both long and short-term debt. At $35 per share, the offer values Cooper Tire & Rubber at $2.5 billion. It is valued quite cheaply at only 3.9 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization).

The cheapest among its peers

Compared to its peers including Goodyear Tire & Rubber (NASDAQ: GT) and Bridgestone (NASDAQOTH: BRDCY), Cooper Tire is the company with the cheapest value.

Goodyear trades at around $14.80 per share, with a total market cap of more than $3.6 billion. The market values it a bit higher than Cooper at 4.3 times its trailing EBITDA. Goodyear is considered the leader in global tire industry, with 80% of its revenue from replacement market. The company also generated most of its revenue from North America, which represents 46% of its 2012 revenue. Europe, Middle East & Africa ranked second, accounting for 33% of the total sales. Goodyear has listed three key strategies for the future, including improving profitability in North American market, winning in China and continuing its success in EMEA/LAT regions. For the full year 2013, the company expects to generate $1.4 to $1.5 billion in operating income.

Bridgestone is the most expensive company of the three. At $66.70 per share, it is worth around $52.20 billion on the market. The market values Bridgestone at more than 10 times its trailing EBITDA. This Japanese tire maker operates in two main business segments: The Tire segment and the Diversified Product segment, with more than 316 subsidiaries and 148 associated companies. In the first quarter of 2013, Bridgestone had a 9.4% growth in revenue to ¥794.6 ($8.15) billion while its operating income increased by 18.1% to nearly ¥74.5 billion ($764.6 million). The Tires segment contributed ¥67.9 billion ($697 million) in operating income while the Diversified Product segment generate only ¥6.4 billion ($65.68 million) in profits in the quarter. The operating profit of the Tires segment has experienced a 19% growth in operating income due to the global introduction of new products and strengthening fundamental competencies including specification optimization. For the full year 2013, the company expects to generate ¥3.55 trillion ($36.43 billion) in sales, with an operating income of ¥382 ($3.92) billion. The net income was estimated to stay around ¥235 ($2.41) billion, or ¥300.19 ($3.08) per share.

My Foolish take

With the good position in both global and North American tire industry, good historical growth in revenue and net income, a strong balance sheet and a cheap valuation, Cooper Tire & Rubber seems to be cheap at $35 per share. Currently, the company is trading even lower at only $32.80 per share, 6.3% lower than Apollo’s offering price.

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Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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