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Apollo, Michelin in two-way deal

New Delhi, Nov. 17: Apollo Tyres Ltd today said that it is offering 14.9 per cent stake in the company to Europe’s largest tyre maker, Michelin. It is also entering into a joint venture to make radial tyres for commercial vehicles.

Michelin will hold 51 per cent stake in the new joint venture entity, Michelin Apollo Tyre Ltd, while Apollo would hold the rest, said a joint company statement. It added, the new firm would invest Rs 322 crore over the next four years to make truck and bus radials bearing the names of both companies.

Apollo’s board has approved the sale to the French tyre maker at about Rs 235 a share, worth around Rs 129 crore. The company will issue the 14.9 per cent stake or 5.71 million new shares by way of preferential allotment to Michelin.

“The price of Rs 236 a share has been decided by a pre-determined formula fixed by Sebi,” said Sunam Sarkar, chief of strategy and business operations. Post-issue the firm’s equity capital would go up to about Rs 37 crore from Rs 32.6 crore.

However, Apollo said it still required the approval of Foreign Investment Promotion Board for the joint venture and the stake sale, which it expects in a month.

Apollo, which has almost a quarter of the domestic tyre market, also said it has ended its existing technology supply agreement with Germany’s Continental AG.

“We ceased to be technology partners from Sunday,” said Onkar S. Kanwar, chairman of Apollo Tyres.

“Apollo and Michelin, both of us are convinced that Indian roads have reached a stage of development which requires radial truck tyres,” Edouard Michelin, managing partner at Michelin, told The Telegraph.

Jean-Marc Francois, president of Michelin’s Asia-Pacific zone said it would take 18 to 24 months to set up the plant, the location for which has still not been decided.

“We are looking at Karnataka, Tamil Nadu and Maharashtra, but depends which state provides us the maximum tax benefits and sops,” he said. The JV firm would import tyres from April from one of Michelin’s south-east Asian plants, he added.

Michelin would also provide technical assistance in making Apollo passenger car radials as well as market its own tyres positioned in the premium segment.

The domestic tyre industry, worth $2.2 billion, comprises 70 per cent bus and truck tyres. But less than 2 per cent of the tyres are radials.

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