Cooper Tire moves court to force Apollo Tyres to close $2.5 bn acquisition

Cooper Tire & Rubber Co yesterday moved a US court to compel Apollo Tyres to close its $2.5 billion acquisition of the American company in a timely manner.

The move comes after Cooper Tire shareholders this week approved the deal, which would create the world's seventh-largest tyre manufacturer.

The Ohio-based company is asking the court to compel Apollo to action to close the transaction. In its complaint, Cooper says that Apollo is seeking to delay an agreement with the United Steelworkers (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.

''Cooper has an obligation to protect the rights of our stockholders, who voted overwhelmingly in favor of the merger. With their approval, we have met our conditions for closing. The complaint filed today is a necessary step in the process to assure that the terms of the merger agreement are met as required and that we do everything possible to get the transaction closed promptly,'' said Cooper chairman, CEO and president, Roy Armes.

Apollo said that Cooper had no basis to take legal resources but it was working to complete the deal.

"We are disappointed that Cooper has taken this unusual step and question their motives. The litigation simply has no basis," Apollo said in a statement.

Billed as one of the largest US acquisitions by an Indian firm, a wholly-owned US subsidiary of Apollo had in June proposed to acquire Cooper - the 11th largest tyre maker in the world, for $35 per share in cash, or $2.5 billion. (See: Apollo Tyres to acquire Cooper Tire & Rubber Co for $2.5 bn)

Apollo's Indian arm had taken a loan of $400 million to fund part of the $2.5-billion acquisition, while a major portion of the $2.1 billion debt would be leveraged on cash flows from Cooper and Vredestein, the company's Netherlands-based arm.

''Out of the total debt that is being raised $1.8 will be through bonds which have 7-8 year term, $300 million will be through asset-backed leveraging, all of this will be dollar loans raised by our European and international operations," Neeraj Kanwar, vice-chairman and MD, Apollo Tyres had then said. "A further $400 million will be raised on the back of our Indian cash flows."

The acquisition would give Gurgaon-based Apollo access to North America and China, currently the two largest automobile markets. North American sales account for approximately 70 per cent of Cooper's $4.2 billion revenues, with international revenues comprising the rest.

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

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.

The setback came after 5,000 workers at Cooper's joint venture plant in China refused to make Cooper-branded tires in protest against the merger.

Cooper's Chinese partner Chengshan Group, has gone to court seeking to dissolve the joint venture, and if the court rules in favour of Chengshan, Cooper may have to sell the JV plant to its Chinese partner, leaving Cooper with only one other plant in China.

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

Chinese workers at the JV fear that their interests might be harmed with acquisition as they suspect that Apollo would not be able to repay the debt incurred over the deal.

According to Che Hongzhi, board chairman of the Chengshan Group, the large debt raised by Apollo would probably make it extremely difficult for the company to invest its profits in future production, in a possible reference the JV's financial strain in the ensuing closure.