The ongoing acquisition-related dispute between Cooper Tire & Rubber Co. (CTB) and India-based Apollo Tyres Ltd. has taken a new turn. Apollo Tyres has filed a counterclaim against Cooper Tire with the Delaware Court of Chancery stating that the latter has not provided adequate information required for closing the merger, including access to books of accounts and other documents.
Apollo Tyres also expressed doubts regarding the control Cooper Tires has over its Chinese subsidiary Cooper Chengshan Tire. The 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.
Apollo Tyres is also facing trouble in reaching a new agreement with United Steelworkers (:USW), the labor union that represents Cooper Tire’s workers in Findlay, Ohio and Texarkana, Arkansas. The union is uncertain about the impact of the acquisition on employees. As per an arbitrator’s order, a new agreement with the USW is essential for closing the deal.
Apollo Tyres is seeking an $8–$9 per share reduction in purchase price from $35, particularly due to the costs incurred while dealing with the labor unions, according to media reports. The initial price agreement included a 40% premium on the 30-day volume-weighted average price of Cooper Tire.
However, Cooper Tire is reluctant to accept the lower price and claims that Apollo Tyres is intentionally delaying an agreement with the union to avoid the completion of the acquisition or to seek a better price. However, Apollo Tyres claims 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 has breached the merger agreement, the merger agreement can be terminated without any penalty to either party. Cooper's complaint alleges Apollo has indeed breached the agreement.
As a result, earlier this month, Copper Tire filed a complaint with the Delaware Chancery Court requesting the court to coerce Apollo Tyres into completing the acquisition promptly. The trial is scheduled to begin on Nov 5.
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 received an astounding 96% support of the voting shareholders of Cooper Tire.
On completion of the acquisition, 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 11th largest tire company in the world, 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 include Goodyear Tire & Rubber Company (GT), Magna International Inc. (MGA) and TRW Automotive Holdings Corp. (TRW). All these companies carry a Zacks Rank #1 (Strong Buy).
(We are reissuing this article to correct a mistake. The original article, issued Wednesday, Oct 16, 2013, should no longer be relied upon.)