Cooper Tire tells court its China partner was eyeing bid

ERJ staff report (TP)

Wilmington, Delaware − Cooper Tire & Rubber’s partner in a Chinese joint venture was exploring a bid for the fourth-largest US tire maker when Cooper struck a deal with an Indian suitor, Cooper's chief executive told a court on Tuesday (5 November), reported Tom Hals for Reuters.

After the deal was announced, Chengshan Group has attempted to kill its venture partner's deal with Apollo Tyres by locking out Cooper management and halting production of Cooper-branded tires, Roy Armes, Cooper's CEO, testified on 5 November.

That dispute and a disagreement with a US union are at the centre of a legal battle over the failure of Apollo to close its $2.5bn (€1.85bn) agreement to acquire Cooper.

The deal would transform Apollo from a company dependent on the Indian market into the seventh-largest tire maker in the world with nearly 80 percent of its revenues generated overseas.

Cooper is coming off a record year for earnings and stands to lose the 40 percent premium that Apollo offered for its stock.

Judge Sam Glasscock must decide if the closing conditions to the deal have been met, and if not, who is to blame.

Apollo alleges Cooper has not provided it with the financial information needed to line up financing and accused the US company of failing to control its Chinese joint venture.

As Cooper sees it, the Chinese lock-out is a risk that Apollo should have baked into its $35 (€25.88) per share price. The US firm says that Apollo is intentionally dragging its feet in labour talks with the United Steel Workers at two Cooper plants and using that as an excuse to seek a lower deal price.

Cooper wants Glasscock to order Apollo to accept a labour deal it reached with the union last week, and order the sale to Apollo to close.

Cooper shareholders appear to have their doubts about a deal getting done on the original terms, and on Tuesday the company's stock was trading at $24.89 (€18.4), down about 3 percent and well below the deal price.

Armes spent Tuesday (5 November) morning describing the deteriorating relations with its partner in China once it unveiled a deal with Apollo. Armes said that Chengshan Group had been in talks about making its own bid for the Findlay, Ohio-based company when Cooper agreed to a deal with Apollo.

Armes said he worked with advisors from Apollo to work out the problems in China and thought things were going well until a 27 August email from Neeraj Kanwar, Apollo's vice chairman. The message raised the possibility the Chinese problems could threaten the deal's financing.

"As I recall I was at first surprised and confused," said Armes, who said just three days earlier Kanwar's tone was friendly. "It seemed somewhat contradictory."

A few weeks later, an arbitrator issued an injunction preventing the deal from closing until a new labour deal had been reached with the United Steel Workers.

Armes said he was confident that an agreement would be reached, but just days before Cooper shareholders were to vote to approve the sale, Kanwar called to say a labour agreement would cost up to $125m (€92.48m). The Indian company wanted to cut the deal price by as much as $2 (€1.48) per share.

"I was offended," said Armes. As he saw it, Apollo was asking Armes's shareholders to pay a very steep price that was allegedly being demanded by unions at the company's plants. Cooper has taken the position that the risk of labour problems should have been part of the price Apollo negotiated.

The trial will run through today (7 November) and Glasscock is expected to rule relatively soon after.

The case is Cooper Tire & Rubber Co v. Apollo (Mauritius) Holdings Pvt. Ltd, Delaware Court of Chancery, No. 8980.

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Full story from Reuters