Cooper Tire terminates €1.8bn sale to Apollo

ERJ staff report (TP)

Delaware − Cooper Tire & Rubber said it was terminating a proposed $2.5bn (€1.8bn) sale to India’s Apollo Tyres with both sides threatening legal action over a deal plagued by obstacles from the start, reported Aradhana Aravindan and Rafael Nam for Reuters.

Cooper Tire said on Monday (30 December) it was walking away after being informed by the Indian tire maker that financing was no longer available for a takeover that would have been India's second biggest in the US.

Cooper added it would pursue legal steps to protect the company. Apollo responded by saying it was "disappointed" that Cooper had prematurely ended the agreement, and that it would pursue legal remedies of its own.

Those threats could continue a legal stand-off between the two sides, whose relationship descended into acrimony soon after Apollo agreed to buy Cooper for $35 (€25.44) a share in June, hoping to transform itself into the world's seventh-largest tire maker and cut its dependence on domestic sales.

The dispute is likely to focus on whether either company is liable to pay a break-up fee. Under the deal terms, Apollo would have been liable to pay a $112.5m (€81.8m) fee, while Cooper could be held responsible for break-up fee of $50m (€36.3m).

"Cooper does not believe the $50m (€36.3m) termination fee applies. As to the $112.5m (€81.8m) reverse termination fee from Apollo, Cooper is pursuing this and other possible damages," Chief Financial Officer Bradley Hughes said.

Despite the threat of legal action, the collapse of the deal may be welcomed by Apollo investors who had expressed concern over the debt-funded acquisition of a company nearly three times its stock market value at that time.

Soon after the offer was made, Apollo sought a price cut of as much as $9 (€6.54) a share, citing Cooper's US labour trouble and disruption at a Chinese joint venture.

Analysts were surprised Cooper had announced the termination before the offer from Apollo was set to expire on 31 December.

The outcome itself was less of a surprise. Expectations the deal would unravel rose after a court in Delaware in November ruled the Indian tire maker had not breached its obligations, delivering a setback to Cooper's attempt to compel Apollo to close the deal.

An appeal by Cooper was dismissed by the Delaware Supreme Court in December. The case returned to the lower court, which asked for an update on 10 January on the status of the deal.

The two sides have been at loggerheads for months, with Cooper accusing Apollo of suffering a case of buyer's remorse.

The Indian tire maker has blamed Cooper for its difficulties in securing financing for the deal, after initially lining up funding from Deutsche Bank, Goldman Sachs, Morgan Stanley and Standard Chartered).

At the heart of the dispute has been Apollo's failure to reach contract agreements with Cooper's United Steelworkers union as mandated by a US arbitrator in September.

At the same time, Chengshan Group, Cooper's partner in China, has opposed any merger with Apollo, filing a lawsuit against the US tire maker to dissolve their joint venture.

Apollo has said these two developments were not expected at the time of the deal, but Cooper maintains the issues are a result of the merger and says Apollo was aware of the risks.

Meanwhile, Cooper Chief Executive Roy Armes said that addressing the joint venture in China and restoring normal operations was the company's top priority.

The collapse leaves Apollo to focus on a slowing home market, which provides two-thirds of its revenue. The tire maker in November said domestic sales had fallen 7 percent in July through September.

Apollo shares hit a record Rs104 (€1.22) on Monday (30 December) and are up over 10 percent since it first announced the deal in June. Cooper shares were at $23.99 (€17.44), well below the offer price.

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Full story from Reuters