Cooper terminates Apollo merger pact

Apollo backed out of the $2.5-bn deal after the US company failed to reach a wage agreement with its US-based employee unions

It was slated to be the single largest outbound deal in India’s automotive industry. But six-and-a-half months after Gurgaon-based Apollo Tyres said it was acquiring US-based Copper Tire & Rubber Company for $2.5 billion, the deal has collapsed after much acrimony.

Cooper said on Monday it was terminating the stake sale arrangement with Apollo Tyres. “It is time to move our business forward,” Roy Armes, chairman and chief executive officer, Cooper Tire, said in a statement. “While the strategic rationale for a business combination with Apollo is compelling, it is clear that the merger agreement both companies signed on June 12 will not be consummated by Apollo and we have been notified that financing for the transaction is no longer available. The right thing for Cooper now is to focus on continuing to build our business.”

The announcement comes close on the heels of the Delaware Supreme Court dismissing Cooper’s appeal against an earlier lower court ruling that Apollo had not breached its obligations to reach new contract terms with unions at Cooper plants in Ohio and Texas. The ruling had dealt a setback to Cooper’s attempts to compel Apollo Tyres to close the deal.

Apollo Tyres said in a statement, “Apollo is disappointed that Cooper has prematurely attempted to terminate our merger agreement. 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 with no choice but to pursue legal remedies.”

The statement added, “Importantly, Apollo has many other compelling growth opportunities around the world that we are continuing to pursue.  Our business is performing well – as evidenced by the strong top and bottom line results we reported last quarter – and we remain focused on executing our standalone strategic plan to maximise value for Apollo’s shareholders.”

Apollo Tyres had on June 12 said it would acquire Cooper Tire for $35 a share – a premium of 40 per cent over the stock’s 30-day volume-weighted average price. The combined entity was set to emerge as the seventh largest tyre manufacturer globally.

However, differences between the two companies erupted in October with the American tyre maker accusing the Indian firm of delaying an agreement with United Steel Workers (USW), representing Cooper employees at facilities in Findlay, Ohio and Texarkana, Arkansas.

Apollo had denied the allegations but sought price reduction in the $2.5-billion deal, citing problems related to Cooper’s operations in China and concessions to be made to the workers’ union. Cooper had refused to accept a lower offer.

Cooper did not specify whether Apollo Tyres would pay the break-up fee of $112.5 million but Armes added, "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."

Chengshan Group (Cooper's partner in China) had opposed any merger with Apollo and filed a lawsuit against the US tyre maker to dissolve their joint venture. Apollo said these two developments were not expected at the time of the deal and, as a result, had sought to cut the deal price.

Armes on Monday said, "Addressing the situation at Cooper Chengshan Tire (CCT) in Rongcheng, China, is our top priority in the near term." The issues at CCT were driven by the merger agreement, and with the agreement terminated, Cooper was working independently to restore normal operations at CCT, including obtaining the information needed for Cooper to resume regular financial reporting as soon as possible, he said.