Apollo Tyres wins round 1 in Cooper Tire case in US court

A US court has ruled in favour of Apollo Tyres Ltd saying it did not breach its obligation to complete  its $2.5-billion acquisition of Cooper Tire & Rubber Co on 4 October, as originally agreed by the two companies.

Delaware court Judge Sam Glasscock rejected Cooper's allegations that Apollo was intentionally delaying negotiations with the United Steelworkers (USW) and wants to now buy the Ohio-based company for less than the agreed price.

Cooper went to court seeking to get an order forcing Apollo to accept a labour agreement that was earlier negotiated by Cooper and to get Apollo to close the deal on the original terms as agreed by both companies on 12 June, including a closure of the transaction by 4 October. (See: Cooper Tire moves court to force Apollo Tyres to close $2.5 bn acquisition)

In its complaint, Cooper had said that Apollo was seeking to delay an agreement with the USW, who represent Cooper employees at facilities in Ohio and Arkansas.

It said that an arbitrator had on 13 September ruled that Cooper and Apollo must enter into new agreements with the union prior to closing, and by delaying the agreement, Apollo is breaching the merger agreement.

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

However, Judge Glasscock did not find that Apollo has buyer's remorse as alleged by Cooper's lawyers.

"We are pleased that the Delaware court has found that Apollo is not in breach of its merger agreement with Cooper Tire," said Apollo in a statement. "Apollo continues to believe in the merits of the combination and is committed to finding a sensible way forward."

Cooper said in a statement, ''Cooper Tire & Rubber Company is disappointed with the decision of the Delaware Chancery Court that Apollo did not breach its obligation to expeditiously reach an agreement with the United Steelworkers per the terms of the merger agreement. Cooper is assessing its options with respect to this decision and awaits the Court's ruling on other open matters in this case.''

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

Gurgaon-based Apollo had offered to pay $35 per share in cash, a 42 per cent premium over Cooper's 11 June closing price.  Cooper shares closed yesterday at $23.82 on the New York Stock Exchange.

But no sooner was the deal announced, the merger faced opposition from the USW and workers at Cooper's joint venture in China.

The lockout at the Chinese JV factory of Cooper is also proving to be one the stumbling blocks in closing the deal.

According to court filings, Apollo had offered in September to buy out Chengshan Group from the JV for around $200 million, but Chengshan had demanded $400 million.

Cooper holds a 65-per cent stake in the JV, while the remaining 35 per cent is held by Chengshan. The joint venture was set up in 2006.

As soon as the merger was announced, 5,000 workers at the JV plant refused to make Cooper-branded tires, and Apollo alleges that Cooper had failed to disclose that it did not have control over its Chinese joint venture, which accounts for as much as a quarter of its $4.2 billion earnings.

Cooper does not even know what is being produced or sold at the Chinese venture and Chengshan is not even allowing Cooper management to enter the factory or access financial data, Apollo pointed out.

Apollo said it cannot close the deal until there is clarity from Cooper on its JV in China.

Cooper may have to sell the JV plant to its Chinese partner, opine analysts, leaving it with only one other plant in China.