Apollo Tyres' $2.5-bn acquisition of Cooper Tire hits union hurdle

The proposed $2.5 billion acquisition of US-based Cooper Tire & Rubber Co by India's Apollo Tyres, promoted by by chairman and managing director Onkar S Kanwar has run into trouble after an arbitrator ruled that Cooper cannot sell two plants in the US unless Apollo first reaches an agreement with the workers of those plants.

In June, Apollo, India's largest tyre manufacturer, proposed acquiring Ohio-based Cooper for about $2.5 billion in a bid to emerge as the world's seventh-largest tyre maker. (See: Apollo Tyres to acquire Cooper Tire & Rubber Co for $2.5 bn)

The deal would be the biggest acquisition of an US firm by an Indian company.

Arbitrator James Oldham's ruling recognised the ''successorship clause'' in the United Steelworkers Union's (USW) labour agreements with Cooper applied to the transaction and ordered Cooper to put the sale of its plants in Findlay, Ohio and Texarkana, Arkansas, on hold until Apollo and the USW could reach collective bargaining agreements covering about 2,500 workers.

''Successorship clauses often are the only thing protecting workers' rights when sales like this take place,'' said USW International's president Leo Gerard. ''Our union has gone to bat time and time again in numerous industries to protect the rights of our members and to make companies live up to their commitments.''

Both Cooper and Apollo over the weekend said that they would hold discussions with the union.

''We are disappointed with the arbitrator's ruling,'' Cooper said in a statement. ''We are reviewing our options and look forward to working with Apollo and the union to continue discussions and resolve the matter.''

The setback on closing the acquisition comes after 5,000 workers at Cooper's joint venture plant in China refused to make Cooper-branded tires in protest of the merger.

Cooper's Chinese partner Chengshan Group, has gone to court seeking to dissolve the joint venture, but a hearing scheduled earlier this week was postponed.

If the court rules in favour of Chengshan Group, Cooper may have to sell the JV plant to its Chinese partner, leaving Cooper with only one other plant in China.

In such a scenario, Apollo will be left with no option but to abandon the acquisition, say analysts.

With a 13-per cent US market share and a market cap of $2.2 billion, Cooper designs, manufactures markets and sells passenger car, light truck, medium truck, racing and motorcycle tires through a number of subsidiaries, affiliates and joint ventures worldwide.

Its brands include Cooper, Mastercraft, Dean, Starfire, Dominator, Roadmaster, Avon Tyres, Mickey Thompson, Dick Cepek, Chenshan, Austone and Fortune.

Cooper, the 11th-largest tire company in the world, which competes with Bridgestone, Goodyear and Groupe Michelin, is primarily focused on manufacturing tyres for the replacement tyre market.

The New York Stock Exchange-listed company has 60 manufacturing, sales, distribution, technical and design facilities worldwide and also owns the UK Avon Tyres brand, which produces tyres for motorcycles, road cars, and for motor racing.

North American sales account for approximately 70 per cent of its $4.2 billion revenues, with international revenues comprising the rest.

Gurgaon-based Apollo said that the combined company will have sales of $6.6 billion and become the seventh-largest tyre company in the world with a strong presence in high-growth end-markets across four continents.

Founded in 1972, Apollo Tyres commissioned its first plant in Perambra, Kerala. It expanded in 2006 by acquiring South Africa's Dunlop Tyres International.

The company now has four manufacturing units in India, two each in South Africa and Zimbabwe, and one in the Netherlands and exports to over 118 countries.

Powered by its key brands, Apollo, Dunlop and Vredestein, the company offers a wide range of tyres for passenger car, light truck, truck-bus, off highway and bicycle tyres, retreading material and retreaded tyres.

Apollo uses 1,300 tonnes of rubber daily to manufacture 30 million tyres per annum and generates 59 per cent of its $2.5 billion revenues from India, 28 per cent from Europe and 13 per cent from Africa.

In India the company has a network of over 4,000 dealerships, of which over 2,500 are exclusive outlets. In South Africa, it has over 900 dealerships, of which 190 are Dunlop accredited dealers.