The ongoing acquisition-related dispute between
Cooper Tire & Rubber Co.
) and India-based Apollo Tyres Ltd. has taken a new turn. Apollo
Tyres has filed a counterclaim against Cooper Tire with the
Delaware Court of Chancery stating that the latter has not
provided adequate information required for closing the merger,
including access to books of accounts and other documents.
Apollo Tyres also expressed doubts regarding the control
Cooper Tires has over its Chinese subsidiary Cooper Chengshan
Tire. The deal is facing opposition from Cooper Tire's Chinese
joint venture partner Chengshan Group Co. and the Chinese labor
union. The Chinese workers feel that the deal will jeopardize
their employment and are seeking dissolution of the joint
Apollo Tyres is also facing trouble in reaching a new
agreement with United Steelworkers (USW), the labor union that
represents Cooper Tire's workers in Findlay, Ohio and Texarkana,
Ark. The union is uncertain about the impact of the acquisition
on employees. As per an arbitrator's order, a new agreement with
the USW is essential for closing the deal.
Apollo Tyres is seeking an $8-$9 per share reduction in
purchase price from $35, particularly due to the costs incurred
while dealing with the labor unions, according to media reports.
The initial price agreement included a 40% premium on the 30-day
volume-weighted average price of Cooper Tire.
However, Cooper Tire is reluctant to accept the lower price
and claims that Apollo Tyres is intentionally delaying an
agreement with the union to avoid the completion of the
acquisition or to seek a better price. However, Apollo Tyres
claims that it is trying to reach an agreement with USW, although
it will take time.
According to the terms of the contract, if the acquisition
does not culminate by Dec 31, 2013, the merger agreement can be
terminated without any penalty to either party. As a result,
earlier this month, Copper Tire filed a complaint with the
Delaware Chancery Court requesting the court to coerce Apollo
Tyres into completing the acquisition promptly. The trial is
scheduled to begin on Nov 5.
The acquisition of Cooper Tire by a wholly-owned subsidiary of
Apollo Tyres was announced in Jun 2013. The transaction was
approved by the board of both the companies before the deal was
made public. Thereafter, the deal received clearance from both
the U.S. and foreign regulatory bodies and received an astounding
96% support of the voting shareholders of Cooper Tire.
On completion of the acquisition, the resulting company will
be the seventh-largest tire company in the world with presence in
various lucrative markets such as North America, India, China,
Latin America and Africa. Currently, Cooper Tire is the 11
largest tire company in the world, on the basis of revenues.
The acquisition will result in benefits of operating scale,
sourcing, technology, product optimization and manufacturing
improvements, which are expected to boost earnings before
interest, taxes, depreciation and amortization (EBITDA) by
$80-$120 million per annum after 3 years.
Cooper Tire currently carries a Zacks Rank #5 (Strong Sell).
Some stocks that are worth considering in the same industry
Goodyear Tire & Rubber Company
Magna International Inc.
TRW Automotive Holdings Corp.
). All these companies carry a Zacks Rank #1 (Strong Buy).
COOPER TIRE (CTB): Free Stock Analysis Report
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