I don't have the full filing yet only a brief summary. I suspect you will see an article by the end of the day in Bloomberg, WSJ or NYT.
1 p.m. EST was the filing deadline for CTB/Apollo briefs with the Sup. Ct. I suspected it drifted up on folks speculating that a settlement might occur before the filing deadline. Obviously, that did not happen. Looks like this will be reviewed by the Del. Sup. Ct. In the filing, CTB indicated that Apollo still does not have an agreement with the USW and CTB cannot predict when it will have 3q financial statements filed.
I read this provision the same way you do, and thought CTB would win at the trial court level. Therein lies the rub. The standard for appellate review is different than the standards for trial court review. The Del. Sup. Ct. will grant deference to the trial court's findings of fact and conclusions (such as they are), and, therefore, CTB has a bigger hill to climb on review than at the trial court level. The stats. I previously posted for Chancery Ct. reversal (16.4% reversal rate) illustrate this point. Due to the convoluted nature of the trial courts opinion, I'm actually assigning a 2x better chance for CTB at 33% than the normal rate upon review.
All that said, you never really know what is in a judge's mind or who he/she will approach a case. At least on review, CTB will have five justices all reviewing the matter, discussing the matter and then writing a coherent opinion. Win or lose, CTB should get a better review in this Court then they received at the Chancery court level.
I would still handicap this case as 2:1 in Apollo's favor, but that is pretty goods odds for CTB compared to most appeals. A lot depends on how the Del. Sup. Ct. approaches this case. If this court just reviews Glasscock's very limited ruling without addressing the China issue, that bodes well for Apollo. However, if the Court looks at this matter in its totality, including China, USW and discussions prior to the signing of the merger agreement, then it favors CTB. Unfortunately, Glasscock does not appear to have left the Sup. Ct. much record for review. Therefore, under the second scenario, the Sup. Ct. will need to step out of its usual role as reviewer and almost step into the role of fact finder due to Glasscock's odd ruling. Hard to say if the Court will go this far, but if they conclude Apollo stands to be rewarded for its own misconduct in this matter, they may be willing to assume this role.
Apollo's legal obligation stems from Apollo accepting the following as not constituting a Material Adverse Effect under the merger agreement:
"(F) the execution and delivery of this Agreement or the public announcement or pendency of the Merger or any of the other Transactions or the Financing, including the impact thereof on the relationships, contractual or otherwise, of the Company or any of its Subsidiaries with employees, labor unions, customers, suppliers or partners, and any litigation arising from allegations of any breach of fiduciary duty or violation of Law relating to this Agreement or the transactions contemplated by this Agreement, or compliance by the Company with the terms of this Agreement,"
Apollo's practical issue stems from their continual profession of their desire to close this deal. Despite this professed desire, the Forbes article points out that Apollo, who controlled negotiaitons with Chengshan, engaged in a course of conduct with Chengshan that escalated the CTB/Chengshan dispute. Whether this constituted a bad faith attempt by Apollo to either scuttle the deal or close the deal at a reduced price will be for the Court to decide.
I don't disagree that the conduct of the Chinese circumvents every conventional Western business and legal norm. However, it appears Apollo was well advised by CTB prior to the agreement that Chengshan would be an issue that Apollo would need to address to close this deal.
I read the Deal Professor article in the Times and he makes some good points.This is by no means a slam-dunk appeal for CTB. However, since the time of that article CTB has reached agreement with the USW on the revised labor contract (see below). Glasscock's ruling focused on this aspect of the case, but as time passes, this aspect of the case is now less significant than the Chinese issue. As Glascock passed on this issue, the Chinese issue will be an issue of first impression for the Court, and the most germane issue regarding specific performance.
Published on November 25, 2013
Cooper workers overwhelmingly approve revised contract
TEXARKANA, Ark.—Workers at Cooper Tire & Rubber Co.'s plant in Texarkana have approved a revised labor contract by a majority of 84 percent.The vote, by members of United Steelworkers Local 752L, is part of the process Cooper is pursuing to clear hurdles to get the merger process with India's Apollo Tyres Ltd. back on track
My discussion of specific performance is a bit technical. Appellate courts typically only review what was decided in the underlying case. However, in this case, Glasscock's ruling/letter was at best partial. Therefore, I think the Delaware Sup. Ct. will look at more than just his ruling/letter in making their final decision in this case. Specifically, I'm suggesting they will look at the China/financial statement issue which, based on documents released to date, Glasscock did not appear to address in his original ruling/letter. This is the only way to decide the specific performance issue.
As regards the second issue, Apollo is arguing that as of Nov. 14th it can no longer specifically perform because CTB did not present F.S. (financial statements) for the 3Q to Apollo and creditors by the drop dead date for the financing agreement. CTB is arguing the reason for this problem stems from Apollo's actions and alternatively Apollo assumed the China risk in the merger agreement. CTB is also arguing there is alternative financing via the Bridge-to Bond facility.
The article, appears to support CTB's argument as regards Apollo's actions in China. It also helps CTB with the Court's overall impression of Apollo. Essentially, Apollo severally impaired CTB's China operations and, despite what Apollo states about still wanting to close, now wants to walk away from the consequences of the decisions referenced in the article.
Interesting article in Forbes on the Cooper/Chengshan blow up. The article, particularly the quote below, lays the responsibility for this problem directly in Apollo's lap. It appears Che after the first meeting expected a second meeting, with a specific discussion of compensation, prior to the close of the deal. That did not happen, at the direction of Apollo, and led to the financial statement standoff and operational standoff between CTB and Chengshan that exists to this date. Glasscock never really addressed this issue in his truncated letter/opinion in the underlying matter. To the extent the Sup. Ct. will entertain this issue, and I think they will because the lack of F.S. is Apollo's main defense to specific performance, this will be an issue of first impression for the Delaware Sup. Ct. which appears favorable to CTB.
"In light of these developments, Apollo instructed Cooper to inform Chairman Che that Apollo wanted to meet with him again, but that Apollo would do so only after the closing in October. Apollo also instructed Cooper’s CEO to meet with Chairman Che and tell him that neither Cooper nor Apollo had anything of substance to offer him, other than wanting to help bridge the relationship between Apollo and the Chinese partner.."
Strong Nov. U.S. car sales and a down market in general. New cars and new tires on those cars are detrimental to CTB's U.S. replacement tire business. Until we near the 19th, CTB will likely trade on fundamentals unrelated to the litigation outcome.
Sorry, the formatting changed when I posted.
As regards Delaware Chancery, there were 3,525 trial court cases in 2002 and 55 resulted in appeal. Of the 55 appeals, 9 resulted in the appellate court reversing the trial court which is a 16.4% reversal rate. Only 1.6% of all cases were appealed.
The other data is for the U.S. Federal Ct system. It is only listed for comparison purposes.
There is not a lot of data on appeal success, but the study below was done in 2002 by the University of Illinois School of Law comparing Delaware Chancery with the Federal Courts. As the stats indicate, appeals are always an uphill battle. However, in this case, as discussed in my prior post, Glasscock's handling of the underlying case, likely improves the chances for reversal. Ballpark estimate 66% for Apollo/33% for CTB.
Delaware Chancery Federal Courts
in trial court 3,525 259,537
Appeals 55 17,659
Reversals 9 1,141
Reversal Rate % 16.4% 6.46%
Appeal Rate 1.6% 6.8%
Apollo does not have the finances, but its disclosed creditors do have the funds. CTB certainly made mistakes in this matter, but the financing arrangements are not one of them. The obligation to complete the agreement is not subject to financing. Also, in certain circumstances, CTB can compel Apollo to fully enforce the financing agreements, including require Apollo to bring suit against the proposed creditors. I suspect the court's grant of specific performance would be one of these circumstances.
This may require another round of litigation against proposed funders should CTB be granted specific performance, but the Delaware Sup. Ct. ruling certainly has consequences to both CTB and Apollo.
I'm not suggesting a new trial. Only pointing out the unusually circumstances of Glasscock's partial ruling without a formal opinion and his "tortured interpretation" of 6.3/6.12. I'd like to see the transcript also, but at least from press reports, it doesn't appear Glasscock even made many findings of fact. The picture that emerges is that Glasscock (the junior judge on the court) really didn't know what to do with this case and he willing punted to the Delaware Sup. Ct. My experience is the court will give some deference to the lower court if they are presented with a well-reasoned opinion. Best I can determine, that does not exist in this case.
I read the same article. The court will certainly review Glasscock's Section 6.3/6.12 rulings (below). The ruling is ambiguous and courts do not like ambiguities. Also, Glasscock never ruled on the China issue. In fact, best I can determine, he never wrote an opinion for this case. That is pretty unusual for a case that went to verdict. Appellate courts typical review the lower court's opinion and then make a decision about that opinion. In this case, the Sup. Ct. is basically starting from scratch, and can craft their own opinion without any deference to Glasscock's ruling. Hard to say which way the Ct. will rule, but you should get a better reasoned opinion from this Ct. than Glasscock's partial ruling.
"Vice Chancellor Glasscock’s ruling addressed the issue that the parties deliberately did not address. He ruled that Section 6.3 did not apply because “applicable law” did not include an arbitration ruling, only governmental orders and the like.
Then he did something curious. He ruled that Section 6.12 also did not apply because the United Steelworkers contracts were not listed on the disclosure schedules. However, once the arbitrator had ruled, the clause sprang back to life and now required Apollo to negotiate a new contract because it was now a contract “required in connection with the consummation of the merger,” even though it was not listed on the schedule."
Three MW hit piece targets: FSIN, FMCN and SPRD all became subject to MBO's. Management saw their chance to buy the company back on the cheap and took advantage of the situation. If NQ's special committee review report is clean, potential finance sources already have thorough due diligence completed. At that point, an MBO of NQ is not that difficult.
I am currently in via options, and basically assess my position daily based on developments. Right now I'm content to hold CTB, and I expect there will be some further developments between now and the hearing.
CTB still has an uphill fight on appeal. CTB has to win on both the USW issue and the China issue for the court to grant specific performance. However, Apollo potentially has more to lose if the court rules against them. The backup senior secured bridge facility is not contingent on whether creditors were successful in marketing the notes to support this facility. Therefore, if the Court were to grant specific performance, Apollo cannot use the defense that credit is no longer available to close the deal because the notes could not be marketed. At that point, Apollo must go to the financing sources and request funding. Whether those sources balk or not is anyone's guess, but at this point, I suspect they want out of this deal if possible.
Also, Apollo cannot seek to terminate at that point even by paying the $112mm fee. The termination provisions only apply if the deal terminates, and if the Sup. Ct. orders specific performance the agreement is in full force and effect. Perhaps Apollo has a "follow the fortunes" provision in their credit agreements which require creditors to fund if Apollo is ordered by the Court to fund after all appeals are exhausted. If not, the Apollo guys are either brave, crazy or have another plan to avoid the consequences if everything goes wrong on their end.
Reuters published the article below over the weekend. Full article is on Reuters. Looks like 12/19 is the Sup. Ct. hearing date.
Cooper Tire & Rubber Co (CTB.N) will make a last-ditch effort to save its sale to Apollo Tires Ltd (APLO.NS) on December 19, as it seeks a ruling from Delaware Supreme Court that could force the Indian company to complete their proposed $2.3 billion merger.
Apollo, which would become the world's seventh-biggest tire maker, wants to pay less than the $35 per share agreed in June because of demands by unions at Cooper plants and disruptions at Cooper's venture in China.
Cooper wants the Supreme Court to overturn a ruling by a judge on the lower Court of Chancery who found last week that Apollo had not breached its obligations under the deal. A new ruling would have to be issued by December 31, when the merger agreement allows Apollo to walk away.
Apollo declined to comment. Cooper did not immediately respond to requests for comment.
The biggest wild card in future valuation is the litigation in China. As I mentioned in a previous post, there is a definite home court advantage for Chengshan and its group chairman Che Hongzhi. He wants $400mm for his minority stake in this company, and CTB may have to pay something close to that amount in view of their chances in Che's hometown court. Alternatively, they can sell their 65% to Che, but I suspect a low ball offer would be his response. Either way, this accounts for 25% of CTB's revenue. Even if they settle, as this case illustrates, their property rights in China is something that CTB will need to think more about going forward.
The agreement expires on 12/31. If the court rules neither party breached the agreement, everyone gets to walk away without payment of any damages/penalty.