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Cooper scraps $2.5 billion sale pact with Apollo

Tuesday, 31 December 2013 - 11:56am IST | Place: Mumbai | Agency: DNA
Says Apollo failed to find financing for the deal; now, Apollo says it has no choice but to pursue legal remedies.

Almost six months after its announcement, the Rs 14,500-crore deal between Onkar Kanwar-led (pictured) Apollo Tyres, India’s second largest tyre-maker, and the US-based Cooper Tire & Rubber Company fell apart on Monday, as the latter terminated the agreement.

Cooper, the 11th largest tyre-maker globally, said that Apollo failed to find financing for the transaction. “It was clear that Apollo was not going to close the transaction and banks were not going to finance. Hence, we decided to move on and focus on continuing our business,” said a senior Cooper official in a conference call with analysts and media.

Cooper, however, said that it still finds the business combination with Apollo compelling. “While Cooper believes Apollo has breached the merger agreement, and we will continue to pursue the legal steps necessary to protect the interests of our company and our stockholders, our focus will be squarely on our business and moving it forward,” Roy Armes , chairman, CEO and president of Cooper said in a statement.

The deal remained in rough weather right from the start. Cooper launched a legal battle blaming Apollo for delay in settling issues with some of its labour from United Steelworkers Union (USW) at its US plants. It accused Apollo of looking to slash the deal price citing labour issues at the company’s US and China plants.

For its part, Apollo blamed Cooper of misrepresenting facts about its Chinese operations and its unwillingness to give concessions to workers’ union in the US.

Apollo was to acquire 100% stake in Cooper at $35 per share in cash, a premium of around 40% at the time of the deal in June. In its earlier filing with the US Securities and Exchange Commission, Cooper had stated that Apollo was looking for a price reduction of $2.50/share.

Cooper received a further setback when a court in Delaware in November ruled the Indian tyre maker had not breached its obligations. Its appeal was dismissed by the Delaware Supreme Court this month. The case then returned to the lower court, which has asked for an update on January 10 on the status of the deal.

Apollo Tyres said late on Monday that is “disappointed that Cooper has prematurely attempted to terminate our merger agreement”.

It further said: “While Cooper’s lack of control over its largest subsidiary and inability to meet its legal and contractual financial reporting obligations has considerably complicated the situation, Apollo has made exhaustive efforts to find a sensible way forward over the last several months. However, Cooper has been unwilling to work constructively to complete a transaction that would have created value for both companies and their shareholders. Cooper’s actions leave Apollo no choice but to pursue legal remedies for Cooper’s detrimental conduct.”

As part of the deal-specific conditions set by the banks concerned, Cooper was supposed to provide the financial details of the consolidated operations, including the Chinese subsidiary.

However, Cooper could not provide the same.

“Cooper could not provide the Q3 details of its consolidated operations. Hence the banks could not provide the finance, because that was the condition required to be fulfilled,” said a person close to the development.

The merger was scheduled to close on October 4. However, the delay continued with the two companies embroiled in the legal battle.

As part of the deal, Apollo Tyres would have to pay $112.5 million (`690 crore) in case it decides to withdraw, while Cooper had to pay a termination penalty of $50 million if it walks out of the deal.

On the other hand, if the deal stretches beyond December 31, none of the companies has to pay anything.

Cooper said it “does not believe that the termination fee of $50 million applies here. However we will pursue the reverse termination fees of $112.5 million from Apollo Tyres for not completing the deal.”

Considered to be one of the biggest deals in the automotive history, the deal did not go well with Apollo’s shareholders in India.

Investors perceived the deal as a financial strain on the company, given the prospect of huge debt.

Apollo’s shares tanked almost 39% within a few days of the deal announcement, but have since rebounded almost 81% as the prospect of the deal falling through brightened.

Cooper said that it would now focus on resolving the situation at Cooper Chengshan Tire (CCT) in Rongcheng, China. And Apollo said it will continue to pursue compelling opportunities across the world.

Apollo shares ended almost 1.3% up at `102.00 on the NSE (the deal-break news came in after the markets closed); Cooper shares were down 0.70% at $22.80 on the NYSE around 10:15 pm India time on Monday.

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