Apollo developed cold feet as Cooper's profit forecast fell 48%

Says US firm's revenues, profit forecasts fell after deal announcement and then again, with varying explanations

Apollo Tyres, fighting a legal battle with Cooper Tire in the US after its plan for a takeover of the latter ran into rough water, has alleged the financial performance forecast of the American company deteriorated consistently within a few weeks of the $2.5-billion deal announcement in June.

From court documents, Apollo says on September 17, Cooper provided a new account of its financial situation, forecasting a nearly 33 per cent decline in operating profit for September from the forecast delivered only days earlier.

“Now, we have just received yet another story of the company’s third quarter forecast and this one reveals the most troubling shortfall yet — $3.4 billion in revenues and $257 million in operating profit for 2013. In other words, 2013 revenues and operating profit as projected in July were 25 per cent and 48 per cent higher than your current estimates,” goes a letter dated October 4 sent to Cooper by Apollo.

In the court documents filed by Cooper, the US company had alleged the promoters of Apollo were suffering from “buyer’s remorse” and wanted to walk away, after Apollo’s stock fell by  39 per cent a day after the Cooper deal was  announced on June 12. Apollo’s stock is still down by 27 per cent since the deal was announced.

Apollo says the fault is Cooper’s, which gave misleading financial projections. “Your most recent forecast also reflects an additional five per cent decline in projected operating profit for September alone, revealing the promised recovery to be illusory and the company’s current profitability, based on this most recent forecast, to be half of what was projected a little more than three weeks ago,” the Apollo letter said.

“The third quarter has come and gone, and we are saddled with a series of forecasts that leave us confused and deeply concerned over the reliability of the company’s management and its internal reporting and financial forecasts,” it says.

Apollo said to get its funding from banks, it needs consolidated financial statements for the third quarter of 2013, certified by the chief executive officer and chief financial officer of the company, still not available.

On July 21, Apollo says Cooper projected $4.3 bn in revenues and $380 mn in operating profit for 2013.

But within weeks, on August 9, Apollo received a revised 2013 forecast, showing $3.9 bn in revenues and $363 mn in operating profit.

When asked about the falling revenues and profits, Cooper assured Apollo the decline was mainly due to deferred pricing actions in the second quarter that impacted sales volumes toward the end of the second quarter and would, in fact, be compensated by over-performance later in the third quarter. Yet, on September 9, Apollo got another revised version of a business plan, showing further substantial reductions, of $3.6 bn in revenues and $315 mn in operating profit for 2013.

Later on September 17, Cooper forecast a nearly 33 per cent decline in operating profit for September, the projected catch-up month, from the forecast delivered only days earlier. A few days later, the figures further dropped to $3.4 bn in revenues and $257 mn in operating profit for 2013, leading to Apollo developing more cold feet over the proposed transaction.

Cooper Tire’s Apollo dispute fast-tracked

Cooper Tire & Rubber Co got a Delaware judge to fast-track its dispute over Apollo Tyres’s proposed $2.5-billion takeover, setting up the case for trial in November. Cooper asked Chancery court judge Sam Glasscock at a telephone hearing from Georgetown, Delaware, on Wednesday for speedy handling of its suit against Apollo, which had agreed to pay $35 a share for Cooper and now seeks a lower price. Glasscock said he could see a trial taking place early next month.

Bloomberg