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 venture.
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, Arkansas.
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
According to the terms of the contract, if the acquisition does
not culminate by Dec 31, 2013 and if neither party has breached
the merger agreement, the merger agreement can be terminated
without any penalty to either party. Cooper's complaint alleges
Apollo has indeed breached the agreement.
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.
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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 11th
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 include
Goodyear Tire & Rubber Company
Magna International Inc.
TRW Automotive Holdings Corp.
). All these companies carry a Zacks Rank #1 (Strong Buy).
(We are reissuing this article to correct a mistake. The
original article, issued Wednesday, Oct 16, 2013, should no
longer be relied upon.)