Apollo wants Cooper for $2.5/share less

Apollo Tyres wants to pay much less than the Rs14,500 crore it had initially offered to buy US-based Cooper Tire.

As part of the deal announced on June 12, Apollo was to acquire 100% stake in Cooper with an agreement of $35.00 per share in cash – a premium of around 40%.  

However, it has now sought to reduce the price by more than $2.50 a share, Cooper said in a filing to the US Securities and Exchange Commission on Monday. Indeed, at one point, Apollo Tyres had even suggested a price reduction of as much as  “$8 or $9 per share”, the US company noted.

The deal, the biggest involving an Indian company, continues to face challenges over labour issues at Cooper’s Chinese subsidiary and at its US plants, leading to a delay in deal closure.

The delay has worked well for the shares of Apollo Tyres, which had tanked almost 39% within a few days of the deal announcement on June 12. The stock has recovered almost 24% since the end of June.

“There is also a strong buzz in the market that the deal may not happen. If this happens, it will be good news for the investors and Apollo’s stock prices,” said an analyst who did not wish to be named.

This, however, has not gone down well with Cooper Tire, which on Friday filed a complaint in a Delaware US court, asking Apollo to expeditiously close the $2.5 billion acquisition. The company said Apollo was delaying settling issues with some of its labour from United Steel Workers (USW) union at US plants. Separately, workers at Cooper’s joint venture have been on strike for three months in opposition to the deal.

In response to the complaint filed by Copper, Apollo Tyres issued a statement on Monday saying the US-based tyre manufacturer has misrepresented facts about its Chinese operations and is unwilling to give concessions to USW, to take the deal forward.

Apollo said it might face significant costs that were well beyond those it anticipated under the initial merger agreement.

“Cooper has acknowledged to Apollo that some price reduction is warranted. The issue now is by how much. On top of the USW issue, Cooper has breached material representations and covenants, including with respect to its majority-owned China subsidiary due to the fact that Cooper has no control over the subsidiary or access to its books and records,” Apollo Tyres said.

Cooper’s presence in biggest markets like the US and China was considered one of the key highlights of the overall deal. It would have made Apollo the seventh-biggest tyre manufacturer globally.

Experts feel the deal is a risky one for Apollo. It will have to pay $112.5 million (Rs 690 crore) in case it decides to withdraw, while if the deal goes through, the company’s balance sheet will have to bear a burden of a huge debt, not to forget the rupee depreciation.