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Cooper Tire Appeals against Apollo Ruling

Zacks Equity Research

Cooper Tire & Rubber Co. (CTB) has filed an appeal with the Delaware Court of Chancery, seeking the reversal of its partial ruling in the case against Apollo Tyres Ltd. on Nov 8. Further, the company has requested the court to make a ruling before Dec 31, 2013 as the merger agreement between the disputing parties is effective till that date.

According to the terms of the contract, if the acquisition does not culminate by Dec 31, 2013 and if neither party breaches the merger agreement, the agreement can be terminated without any penalty to either party.

Cooper Tire is hoping for a reversal in the ruling made by the court last Friday, which rejected its claim that Apollo Tyres was breaching the terms of its merger agreement with the former by intentionally delaying an agreement with the United Steelworkers (:USW). Cooper Tire holds the opinion that the ruling misinterpreted the terms of its merger agreement with Apollo Tyres.

The company also stressed on the fact that it had a strong operating record before the merger was announced and that its Chinese joint venture was also operating smoothly at that time. The future potential of Cooper Tire had encouraged Apollo Tyres into inking a merger deal.

Cooper Tire also believes that its Chinese operations would have continued to perform strongly and without interruption in the absence of any merger agreement and the agreement itself was the source of all the problems with its Chinese joint venture. Apollo Tyres had earlier expressed doubts regarding the control Cooper Tire has over its Chinese subsidiary, Cooper Chengshan Tire.

The merger 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. They have stopped the production of Cooper Tire-branded tires and are not providing any financial information to the company.

Apollo Tyres revealed in court that it tried to overcome the opposition by offering to purchase Cooper Tire’s Chinese unit. However, the executives of Cooper Tire’s Chinese joint venture rejected its buyout offer and demanded a higher price for the deal.

As a result of the trouble with the Chinese partners, Apollo Tyres is having difficulty in selling bonds to finance the deal. Moreover, Cooper Tire is facing trouble in filing its third quarter financial results due to lack of information related to its Chinese operations, which contribute about one-fourth of its revenues.

Apollo Tyres had filed a counter-claim against Cooper Tire’s court case stating that the latter has not provided adequate information required for closing the merger, including access to accounts and other documents. Thus, Cooper Tire’s inability to provide the third quarter financial results could become a problem. However, Cooper Tire maintains that it has fulfilled all the terms of the contract.

The acquisition of Cooper Tire by a wholly-owned subsidiary of Apollo Tyres was announced in Jun 2013. However, the $2.5 billion acquisition started facing trouble soon, with both parties hurling accusations at each other. The problem was triggered by an arbitrator’s order requiring the two companies to reach a new agreement with USW, the labor union that represents Cooper Tire’s workers in Findlay, Ohio and Texarkana, Ark. While Cooper Tire claimed that Apollo Tyres was intentionally delaying an agreement with the labor union to avoid the completion of the acquisition or to seek a better price, the latter claimed that it is trying to reach an agreement with USW, although it will take time.

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), Continental AG (CTTAY) and Bridgestone Corp. (BRDCY). Continental AG carries a Zacks Rank #1 (Strong Buy), while Goodyear and Bridgestone carry a Zacks Rank #2 (Buy).

Read the Full Research Report on GT
Read the Full Research Report on CTB
Read the Full Research Report on BRDCY
Read the Full Research Report on CTTAY

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