The future of
Cooper Tire & Rubber Co.
) $2.5 billion merger with Apollo Tyres Ltd. seems to be doubtful
now that the two companies are engaged in a public clash over the
deal. The problem was triggered by an arbitrator's order
requiring the two companies to reach a new agreement with United
Steelworkers (USW), the labor union that represents Cooper Tire's
workers in Findlay, Ohio and Texarkana, Arkansas.
Cooper Tires claims that Apollo Tyres is intentionally
delaying reaching an agreement with the union to avoid the
completion of the acquisition or to seek a better price.
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.
Copper Tire filed a complaint in the Delaware Chancery Court
last Friday requesting the court to coerce Apollo Tyres into
completing the acquisition swiftly. However, Apollo Tyres claims
that it is trying to reach an agreement with USW, although it
will take time. Moreover, the company is alleging that Copper
Tire's accusation is an attempt to hide its inability to meet
Meanwhile, the deal is also 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 are on a strike and have stopped the
production of Cooper Tire-branded tires. Moreover, they are not
providing any operational or financial information to the
Meanwhile, Apollo Tyres is seeking a slash in the purchase
price to compensate for the costs incurred while dealing with
labor unions. According to Bloomberg, the India-based company
wants an $8-$9 per share reduction in the purchase
The company had earlier agreed to pay a price of $35 per share
to the shareholders of Cooper Tire, which includes a 40% premium
on the 30-day volume-weighted average price of Cooper Tire at the
time of the announcement of the deal. However, Cooper Tire is
reluctant to accept the lower price.
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
U.S. and foreign regulatory bodies and received an astounding 96%
support of the voting shareholders of Cooper Tire.
If the acquisition is culminated, 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 benefits, 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.
The uncertainty related to the deal is affecting investors'
confidence in Cooper Tires. The shares of the company plummeted
12.8% on Monday to close at $25.72 per share.
Cooper Tire currently carries a Zacks Rank #5 (Strong Sell).
Some stocks that are worth considering in the same industry
Goodyear Tire & Rubber Company
American Axle & Manufacturing Holdings Inc.
Fuel Systems Solutions, Inc.
). All these companies carry a Zacks Rank #1 (Strong Buy).
AMER AXLE & MFG (AXL): Free Stock Analysis
COOPER TIRE (CTB): Free Stock Analysis Report
FUEL SYSTEM SOL (FSYS): Free Stock Analysis
GOODYEAR TIRE (GT): Free Stock Analysis
To read this article on Zacks.com click here.