Glee at Apollo-Cooper deal's likely collapse

As deadline nears for agreement's validity, Indian tyre maker's scrip surges

Investors in Apollo Tyres are cheering at the likelihood that its "expensive" $2.5-billion proposed takeover of Cooper Tire of the US will collapse. The deal, stuck in legal issues, is valid only till December 31.

On Tuesday, Apollo's stock rose eight per cent to Rs 101, breaching its pre-deal high of Rs 90 a share.

"The Apollo-Cooper deal is as good as dead. The only issue between the two parties is to sort the break-up fees," said a banker close to the development. A US court will hear a Cooper petition in January on the amount of the break-up fee, of $112 million, to be paid by Apollo. The latter can, in turn, seek a break-fee of $50 mn if it can prove the transaction failed as Cooper failed to meet its commitments.

Apollo backed out of the deal after the US company failed to reach a wage agreement with its US-based employee unions and the Chinese unit rebelled against the proposed Indian takeover. In court documents filed by Cooper, the US company had alleged the Apollo promoters had "buyer's remorse" and wanted to walk away, after their share price fell by 39 per cent a day after the Cooper deal was announced, on June 12.

Bankers say investors were not sure how Apollo would benefit and, so, sold their shares. "Later, even Apollo realised the deal was not in the interest of the Indian company, as the Chinese joint venture partner rebelled against the Indian takeover," a banker said. "The lesson for corporate India in this episode is to think before jumping for any transaction."

Apollo, on the other side, alleged the financial performance forecast of the US company deteriorated within a few weeks of the takeover announcement. Within days, Cooper sued Apollo in a US court, asking it to complete the deal before the December 31 deadline. However, the court declined to give such an order.

Court documents show Apollo had said on September 17 that Cooper provided a new account of the financial situation, forecasting a nearly 33 per cent decline in operating profit from an estimate of only a few days earlier.

The Apollo defence became stronger after Cooper gave financial information which revealed a shortfall in revenues and operational profit. In a letter dated October 4 to Cooper, Apollo said the former's third-quarter forecast showed a most troubling shortfall, as revenues and operating profit as projected in July were 25 per cent and 48 per cent higher than the October estimates," "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," Apollo said in its court filings.