Cooper Tire & Rubber Co.
) plunged 17% to $22.34 on Friday, after the Delaware Court of
Chancery rejected its claims that Apollo Tyres Ltd. was breaching
the terms of its merger agreement with the former by
intentionally delaying an agreement with the United Steelworkers
(USW). Cooper Tire revealed that it is dissatisfied with the
court's decision and is considering options while waiting for
other rulings related to the case.
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 was supported by an
astounding 96% of Cooper Tire's voting shareholders.
However, the $2.5 billion acquisition started facing trouble
soon, with both parties hurling accusations at each other. The
problem was triggered by an arbitrator's order requiring the two
companies to reach a new agreement with USW, the labor union that
represents Cooper Tire's workers in Findlay, Ohio and Texarkana,
Ark. While Cooper Tire claimed that Apollo Tyres was
intentionally delaying an agreement with the labor union to avoid
the completion of the acquisition or to seek a better price, the
latter claimed 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 and if neither party breaches
the merger agreement, the agreement can be terminated without any
penalty to either party.
As a result, in October, Copper Tire requested the court to
coerce Apollo Tyres into completing the acquisition promptly.
Thereafter, Apollo Tyres filed a counter-claim stating that
Cooper Tire has not provided adequate information required for
closing the merger, including access to accounts and other
Apollo Tyres also expressed doubts regarding the control
Cooper Tire has over its Chinese subsidiary, Cooper Chengshan
Tire. The merger 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. They have stopped the production of Cooper
Tire-branded tires and are not providing any financial
information to the company.
Apollo Tyres revealed in court that it tried to overcome the
opposition by offering to purchase Cooper Tire's Chinese unit.
However, the executives of Cooper Tire's Chinese joint venture
rejected its buyout offer and demanded a higher price for the
As a result of the trouble with the Chinese partners, Apollo
Tyres is having difficulty in selling bonds to finance the deal.
Moreover, Cooper Tire is facing trouble in filing its third
quarter financial results due to lack of information related to
its Chinese operations, which contribute about one-fourth of its
According to media reports, Apollo Tyres is seeking to reduce
the purchase price from $35 per share, particularly due to costs
incurred while dealing with the labor unions. However, Cooper
Tire is reluctant to accept the lower price. The decision is
pending in court and depends on whether Cooper Tire can prove
that it has fulfilled all the conditions of the deal.
If the acquisition culminates, the resulting company will be
the seventh-largest tire company in the world with presence in
lucrative markets such as North America, India, China, Latin
America and Africa. Currently, Cooper Tire is the world's 11th
largest tire company 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
). Continental AG carries a Zacks Rank #1 (Strong Buy), while
Goodyear and Bridgestone carry a Zacks Rank #2 (Buy).
BRIDGESTONE ADR (BRDCY): Get Free Report
COOPER TIRE (CTB): Free Stock Analysis Report
CONTL AG-SP ADR (CTTAY): Get Free Report
GOODYEAR TIRE (GT): Free Stock Analysis
To read this article on Zacks.com click here.